Plan covers only HCE's - Safe Harbor Notice Required?

[Guest SarahB]

I am adding 401(k) features to a client's profit sharing plan with a safe harbor nonelective 3% contribution. The plan only has 2 participants (company only has 2 employees). Both are HCE's. I understand that the plan is deemed to meet minimum coverage requirements. Is a safe harbor notice still required?

[jkdoll2]

Why are your adding safe harbor to the plan - you dont need it to pass testing for HCE only plan.

Do they plan on adding NHCE's?

[Guest Sieve]

No exception to the SH notice requirement for a plan with only HCEs. But, my question is the same as jk's.

[Lou S.]

Just a guess but sounds like a small plan that's being restated for EGTRRA that will likely have NHCEs in the near future and they are making it SH pre-emptively so it doesn't need to be amended later. Otherwise, SH seems a bit odd to me as well.

Agree notice is required.

[K2retire]

All of our "owner only" plans are safe harbor. The thought process was curious. They are obviously going to be top heavy, since only the business owners participate. When they hire employees, they will immediately owe a top heavy minimum contribution, which most of them will resent. If they also fail ADP testing, they are likely to terminate the plan. So, we make them safe harbor to allow them to keep deferring for the same contribution that would be required anyway for top heavy.

[Tom Poje]

but if they are all owners, then they most likely would be 'key' employees, and the top-heavy could be provided to non-key only - or I would assume so, unless you are stuck with a document that requires all participants to receive top-heavy.

[K2retire]

Yes, but because they are owners and key, they don't want to give anything to anyone but themselves. So if they have to give a top heavy and limit their deferrals they see no point in having a plan at all.