Excluding high paid NHCEs

[TPAnnie]

Hi all! I have a small Safe Harbor non-elective 401k plan with integrated PS allocation and discretionary match provisions. The plan is top heavy.

I usually max out the owner, which results in a pretty large contribution (dollar wise, anyway) to the other employees, as there are several non-owner HCEs and high paid NHCEs.

The owner would like to exclude all non-owner HCEs and select NHCEs from PS and Match. The “select” NHCEs are not set in stone, but rather will be determined annually based on the highest-paid NHCEs that can be excluded and still pass coverage.

I’m having a hard time figuring out whether the document accommodates what he wants….or if it’s even kosher…

Is it possible to incorporate language such as “PS/Match excludes highest paid NHCEs” without defining them by name or division?

Thanks!

[mming]

I would imagine that's discriminatory. Your best bet may be to change the PS allocation to new comparability and have each participant defined as their own allocation group, then try to limit the NHCEs to 5% of comp (or 1/3 of what the HCEs get as a percentage).

I suppose if the ones to be excluded are very young and the owner is very old and gets max comp, the employer could set up a DB/401k combo. The 401k could get very specific about who's eligible while the owner and the excluded ones receive benefits in the DB that pass cross-testing, but, again, the demographics would have to be just about perfect for this arrangement to be more favorable. It would be preferable, however, if the select NHCEs would be set in stone to avoid having to amend annually how the eligible class of employees is defined.

[Bird]

From a plan design standpoint, it's going to be difficult to create a definitely determinable formula to do what you want with an integrated formula. As mming notes, you might as well go with a group-type formula and have each participant in his or her own group and general test.