Safe Harbor Match and Highly Compensated

[Gadgetfreak]

Are you allowed to discriminate against HCEs and not give any of them a SHM? Are you allowed to discriminate against some but not all of the HCEs if you can divide them into reasonable classifications? Can you give the SHM to Keys but not other HCEs (as well as NHCEs)? Thanks.

[Lou S.]

You can exclude all HCEs from the safe-harbor match.

I am not sure if you can have a safe harbor match that benefits some but not all HCEs.

[ERISAnut]

Sure you can. The only requirement for Safe Harbor is that the NHCEs receive it. Your issue would be to map the desired provision correctly on the plan document (assuming you are using a prototype). Most prototypes have boxes for excluding all HCEs and excluding HCEs who are Key Employees from the Safe Harbor Contribution. You may actually exclude any class of HCEs from the Safe Harbor Contributions, but must fit it correctly on your document.

[mschwechter]

Sure you can. The only requirement for Safe Harbor is that the NHCEs receive it. Your issue would be to map the desired provision correctly on the plan document (assuming you are using a prototype). Most prototypes have boxes for excluding all HCEs and excluding HCEs who are Key Employees from the Safe Harbor Contribution. You may actually exclude any class of HCEs from the Safe Harbor Contributions, but must fit it correctly on your document.

So suppose you have 2 owners, one who does not want the match, TAG has opined in the past that you run the risk of having a disguised CODA. Hoe do you get past this?

[ERISAnut]

Good question. As long as the exclusion is written as part of the plan, then that would become a non-issue. The issue with Cash or Deferred Arrangments when one owner opts out is a major concern for businesses that are not incorporated. In such instance, any employer contribution made has the effect of reducing 'earned income' for that particular owner. In such instance, you would want the 'facts and circumstances' of each case to show the employer contribution was allocated pursuant to a business decision rather than a personal one. Hence, placing each partner in their owner allocation class (when using a cross-tested plan) may not be a good idea.

But, for SHM, you can write the document to exclude any HCE from this contribution as you please. Then, it is not subject to the discretion of any individual.

Hope this helps.

[Guest Sieve]

. . . and, whether or not you have a disguised CODA has no impact if it's already a CODA (which this is). That only has an impact when it is, for example, a PSP which the IRS wants to treat as a CODA--if it is a CODA, then it is a CODA and there's no disguise about it.