Safe Harbor Non Elective

[Lori H]

a safe harbor 401k currently has the following employer funding: 3% safe harbor qnec, 3% employer p.s. and an employer match of 100% up to the first 3% of deferrals. I understand a Safe Harbor utilizing the basic safe harbor match formula could be enhanced, yet could not incorporate a regular match as well, but could they fund lets say a 5% qnec? This is a unique plan with unique features(i.e. employer funding, monthly entry, etc). We have tried to simplify matters, but this is a group of architects and simplification is not in their vocabulary.

[Tom Poje]

I posed this question at the ASPPA conference Q and A. Actually, as I am part of the process I sat in with the IRS agents a month beforehand to review the questions.

Their initial reaction was that you had to specify the amount of SHNEC in the document but upon further review the regs merely say that the SHNEC must be "...at least 3 %" they indicated that you could probably even word things that way (e.g. as long as you gave at least 3% you were ok, but you could give more (assuming you didn't say the amount was only 3%)

of course, such comments don'y necessarily reflect actual Treasury stance, but ....

[Lori H]

my thinking is that as long as its at least 3% and uniform and non discriminatory, you should not have a problem. i know there is a limit on the enhanced SH Match, but have not read anything in the Aspen publications regarding an enhanced SH QNEC.

[masteff]

Just throw this out there in case you wanted to try the match route...

From what I've seen in a couple articles and from looking back at Notice 98-52, it appears you can have both a SH match and a discretionary match of up to 4%. Perhaps someone w/ better understanding of safe harbor rules can shed some light on it. For instance I can't figure if the discretionary is on comp beyond that covered by the SH match or it uses the same comp (which would effectively make a 2-for-1 match).

[Kevin C]

Yes, you can pair a SH match with a discretionary match of up to 4%. Both matches would use the same comp.

For simplicity you might want to make both matches on a the same level of deferrals. For example, with a SH match of 100% of the first 3% and 50% of the next 2%, pair it with a discretionary match on deferrals up to 5% of pay, with the discretionary match limited to 4% of comp. That would make the maximum match 180% of the first 3% plus 130% of the next 2%. Or, you could go really simple and do a SH match of 100% of the first 4% and a discretionary match on the first 4%, with the discretionary match limited to 4% of pay.

[K2retire]

I posed this question at the ASPPA conference Q and A. Actually, as I am part of the process I sat in with the IRS agents a month beforehand to review the questions.

Their initial reaction was that you had to specify the amount of SHNEC in the document but upon further review the regs merely say that the SHNEC must be "...at least 3 %" they indicated that you could probably even word things that way (e.g. as long as you gave at least 3% you were ok, but you could give more (assuming you didn't say the amount was only 3%)

of course, such comments don'y necessarily reflect actual Treasury stance, but ....

Why wouldn't you just do the 3% SHNE and make the additional amount a discretionary nonelective?

[Tom Poje]

don't ask me why people do what they do. someone asked and I forwarded the question. I suppose its possible the descretionary might have allocation conditions, and it could be cheaper to get give a little bit extra safe harbor contribution to all rather than a discretionary to a few.

[BG5150]

Why wouldn't you just do the 3% SHNE and make the additional amount a discretionary nonelective?

Because if the SH is your only contribution other than deferrals, you get a pass on Top Heavy.

The regs say the SHNEC has to be AT LEAST 3% don't they? So, I'm guessing as long as the document doesn't say the SHNEC must be 3%, then it's okay to up it to whatever.