Safe harbor 401(k) nonelective contribution

[Guest le190]

Most of the documentation I've read on the nonelective contribution safe harbor method says "equal to 3% of each eligible employee's compensation". However, I've seen one place "of at least 3%...". Does this mean that the nonelective could be more than 3%? If so, what is the max %? Thanks in advance for the help.

[Guest AL Minton]

The only concrete reliable info on Safe Harbors I've read is IRS Notice 98-52 (?). I think it was on CCHs release received early February. You should link directly to read it for yourself, but here's what I get from it & all the readings I've done:

Safe Harbor NEC must be exactly 3%.

Anything above 3% will be considered an "additional discretionary" profit sharing contribution & treated as employer non-electives has also been treated -- subject to separte coverage testing, permitted a last day rule & 7graded or 5 yr cliff vesting (6 yr graded/3 yr cliff if top heavy)

From a practical stand point, I assume

when disaggragating for coverage testing your safe harbor NEC eligiblity is reported as your 401(k) eligility, not employer/profit sharing.

[Guest Do]

In order to pass the ADP test under a safe harbor method of nonelective contributions, if the plan requires the employer to make a contribution that is AT LEAST 3% of compensation. See Code Section 401(k)(12) and Notice 98-52. If the employer wants the plan to require more than 3%, that's fine. The amounts above 3% may have the characteristics of a safe harbor nonelective contribution such as nonforfeitability, definition of compensation, no last day of the plan year rule. At the same time, the amounts above 3% need not have these safe harbor characteristics. The maximum would be the limits under 404 and 415.