Non elective contribution

[Gary]

An employer sponsors a 401k plan and a profit sharing plan.

The plan has two HCEs and 5 NHCEs.

2007 was the first plan year.

No 401k deferrals were made by any employee and no employer contributions were made to the above two plans for the HCEs.

1 of the NHCEs terminated during 2007 after the completion of 1000 hours and had met the plan's eligibility requirements at the time of plan inception (1/1/07).

The challenge is addressing the 1 terminated employee.

The employer contributed 3% of compensation for the 4 active NHCEs to the 401k accounts and 4.5% of comp for the 4 active NHCEs to the profit sharing account.

The profit sharing contribution can clearly exclude the terminated employee due to the last day requirement.

The 3% that went into the 401k plan is allegedly a QNEC.

Can a QNEC be made even if not needed to pass ADP test?

If the answer to the above question is "yes", then the terminated employee would not need a QNEC to pass non discriimination and thus would not receive a contribution.

If the answer is "no" then does the 3% QNEC need to be transferred to the profit sharing plan and deemed an additional non elective profit sharing contribution?

And finally, can a QNEC impose a last day requirement, like the profit sharing contribution can?

Of course a 401k safe harbor non elective contribution cannot impose the last day requirement.

Thank you.

[Bill Presson]

Isn't this plan design one of the levels of Hell described by Dante?

[Tom Poje]

look at 1.401(k)-6 Definitions

Qualified Nonelective Contributions (QNECs) is clearly defined

"...without regard to whether the contributions are ACTUALLY TAKEN INTO ACCOUNT under the ADP test...or ACP test...."

emphasis mine.

you should be able to impose whatever conditions on the QNEC. remember it is only a non elective that also meets other conditions - being 100% vested, being able to be used in the ADP or ACP test, being able to count toward top heavy, having distribution restrictions..

[Kevin C]

What does the document say?

It should specify who receives the QNEC. You will also want to make sure it doesn't limit the QNEC to an amount necessary to pass the ADP/ACP test.

[Gary]

Thanks I think I got it.

So unlike the 401k safe harbor non elective contributions that do not allow for a last day requirement a QNEC can impose a last day requirement.