HCE now to receive safe harbor NE

[Guest Tbrown]

We have a client with a safe harbor 3% 401(k) plan. The safe harbor is based on plan year compensation and in the past has been contributed after the end of the plan year along with their profit sharing. They would now like to begin depositing the safe harbor as the year goes along. They have monthly pay periods and after the 1st quarter 2009 is calculated, they will begin depositing the SH along with their deferrals. This is a new comp plan and only the NHCE's receive the safe harbor. The profit sharing can offset the safe harbor so the HCE's get their contribution, just as a profit sharing instead of safe harbor. And they would like to fund for themselves as well each month. The profit sharing has a last day of the year and 1,000 hour requirement. We talked about going ahead and funding the PS for the 2 HCE's (both 50% owners), but now are realizing that they have 2 other HCE's. It is a little tougher to count on everyone being there at the end of the year when 2 of the HCE's are non-owners. We would like to consider changing the safe harbor to be allocated to everyone, but I'm hesitant to make that change mid-year. There would be no one harmed by this change, but the SH notice that was issued last November stated that only NHCE's would share in the contribution. I haven't been able to find anything written that discusses this specific situation.

Any thoughts about making that change to the plan mid-year?

Tim

[cdavis25]

My understanding is that you can not change that SH to all mid year. I agree that it seems silly, but I don't think the IRS would allow it. I think you may also have an issue with allocating the PS prior to year end for anyone, since you have the 1000 hours and last day requirement. You are not following the terms of the Plan document by depositing it early.