Plan Sponsor's cost reduction

[Guest Iwonder]

A 401(k) prototype used by a Dr.s' Group makes a safe harbor match AND a nonelective discretionary contribution. Because of the nonelective discretionary contribution the plan then is subject to the top heavy test.

The plan wants to reduce the cost of the plan. They will continue to make the safe harbor match; will not be making the nonelective discretionary contribution; and will be excluding the highlys from the the employer match.

Two questions:

Do these seem like reasonable ways to reduce costs?; and

Does any reader have any other/alternative suggestions?

All responses will be gratefully received and appreciated.

[BG5150]

Is the profit sharing less than 3% of compensation?

And don't forget, the SH match counts toward the top heavy minimum.

[Guest Iwonder]

Is the profit sharing less than 3% of compensation?

And don't forget, the SH match counts toward the top heavy minimum.

I apologize for not understanding. To be exempt from the top-heavy rules is it not true that there can't be any other employer contribution, such as a profit sharing contribution?

The safe harbor matching contribution is 3%.

[K2retire]

A match of 3% is not sufficient to be a safe harbor match. However, 3% is a common safe harbor nonelective contribution amount. What does the document say is the real safe harbor contribution?

[Guest Iwonder]

A match of 3% is not sufficient to be a safe harbor match. However, 3% is a common safe harbor nonelective contribution amount. What does the document say is the real safe harbor contribution?

The plan provides that the safe harbor matching contribution is to be 3% of included compensation, plus 50% of applicable contributions up to the next 2% of included compensation.

[401king]

Obviously if they are cutting out the NEC then you are reducing the cost of the plan, and if they are excluding KEY/HCE from receiving SH Match, then there's another reduction; so, yes, this is a reasonable way to cut costs.

Other than that, I would just find make the entry into the plan as strict as possible to reduce future costs. And compare the SH match formula costs to what it would be under a SH NEC. Or, if you are seeing a lot of participation in the plan, a QACA would reduce the expense of the SH formula by 0.5%; if you have low participation then this would likely increase the cost of the plan, though.

[Guest Iwonder]

Obviously if they are cutting out the NEC then you are reducing the cost of the plan, and if they are excluding KEY/HCE from receiving SH Match, then there's another reduction; so, yes, this is a reasonable way to cut costs.

Other than that, I would just find make the entry into the plan as strict as possible to reduce future costs. And compare the SH match formula costs to what it would be under a SH NEC. Or, if you are seeing a lot of participation in the plan, a QACA would reduce the expense of the SH formula by 0.5%; if you have low participation then this would likely increase the cost of the plan, though.

Thank you very much!!! This clarifies the issue/answer for me.

And, thank you to other replyers who also helped educate me with regard to this matter.

The kind help was appreciated and I am grateful.

[cpc0506]

Obviously if they are cutting out the NEC then you are reducing the cost of the plan, and if they are excluding KEY/HCE from receiving SH Match, then there's another reduction; so, yes, this is a reasonable way to cut costs.

Other than that, I would just find make the entry into the plan as strict as possible to reduce future costs. And compare the SH match formula costs to what it would be under a SH NEC. Or, if you are seeing a lot of participation in the plan, a QACA would reduce the expense of the SH formula by 0.5%; if you have low participation then this would likely increase the cost of the plan, though.

Thank you very much!!! This clarifies the issue/answer for me.

And, thank you to other replyers who also helped educate me with regard to this matter.

The kind help was appreciated and I am grateful.

You also need to be concerned how the plan handles PS/M forfeitures. If forfeitures are re-allocated, you will not have top heavy exemption that the safe harbor match provides.