Safe Harbor Match only for NHCEs

[Guest milehighheel]

I have a plan that contains a SH Match using the basic formula with no other employer contributions. They are asking if they can exclude HCEs from receiving the 2009 SH Match. They did provide the SH notice to all employees and did not indicate that HCEs would be excluded. They have had a rough year financially speaking and are looking for ways to reduce the amount of match owed.

I understand that in some cases HCEs can be excluded but wondered if they could be in this situation considering that notice was given to all employees. In addition if there was some way they could get away with excluding HCEs would additional testing be required as a result. Obviously the ACP test won't be an issue if no HCEs receive a match but what about the top heavy test? In this situation there are several HCEs who are not Key employees so would some sort of Top Heavy Minimum be required? The plan is Top Heavy for the 2009 plan year which is the year they would like to exclude HCEs from receiving a match. Any insight into this issue is greatly appreciated.

Thanks!

[K2retire]

The HCEs can be excluded if that's what the document calls for, but not if the document says everyone receives the safe harbor match. The notice should reflect what the document says.

[MWeddell]

Assuming the notice said that HCEs (in addition to NHCEs) were receiving the safe harbor match, then you could not give HCEs the match only 30 days after a new notice was issued. I don't see how you're allowed to retroactive take away all of the 2009 safe harbor match for HCEs.

[Kevin C]

The terms of the plan determine who gets the SH match. The SH match is a required contribution, so the section 411(d)(6) anti-cutback rules prevent you from eliminating it retroactively.

The rules for eliminating or reducing the SH match mid year are in 1.401(k)-3(g). Part of that is the 30 day advanced notice before the amendment becomes effective. Another part is that the plan becomes subject to ADP and ACP testing for the entire year. If you don't follow the rules in -3(g), then 1.401(k)-3(e)(1) prevents you from amending mid year.

Is it worth being subject to ADP/ACP testing for the entire year to avoid matching HCE deferrals from 12/5 - 12/31? If not, I would suggest making the change effective 1/1/2010. I'm assuming this is a calendar year plan.

[austin3515]

P.S. is it worth being subject to that insane bane of the small employer's existence - top-heavy?