Safe Harbor match true-up not made to HCEs

[Guest Jill B]

This is very odd. I have a client who's three docs have decided not to fund their Safe Harbor match true-up amounts. They have contributed the full Safe Harbor match to all NHCEs. Can they do this? Part of their Safe Harbor match has been contributed....it's just the true-up that they do not want to fund.

thanks for all comments on this.

[QDROphile]

Are they not complying with plan terms or does the plan, incredibly, describe how the true-up contributions are not made for HCEs?

[Guest Jill B]

Are they not complying with plan terms or does the plan, incredibly, describe how the true-up contributions are not made for HCEs?

I'm not sure. They are not my plan client. I do their bookkeeping, but I may give their plan TPA a call because I'm curious......I'm sure the document doesn't state that the safe harbor match true-up does not need to be made for the HCE's ....but maybe it does!!

[MSN]

No disputing that the plan document needs to be followed, but let's look at this from a practical perspective as well.

A number of small plan clients that I've spoken to over the last few years have come upon hard times financially. They kept the match for all their NHCEs, but when it came time to fund the owners allocation, there wasn't any money left. I see this as a very low risk situation for the client...how many times has an auditor assessed a penalty for denying benefit accruals to HCEs? Worst case, they deem the plan not compliant with the safe harbor and force ADP/ACP testing for the year and possibly a TH allocation, but I think thats a stretch. I know we've had clients that simply refused to make contributions for company owners due to budget constraints and while we explain that the document doesn't provide the ability to waive HCE benefits for the year, we can't force them to make a contribution they don't have. Not sure if this is the case with the OP, since I see very few doctors offices short on cash, but worth consideration. In my recent experience with IRS, I've found them to be reasonable in assessing the clients overall situation and don't feel that they would come down too hard on a sponsor who was trying to do the best they could for their employees.

[KMG77]

I have a client currently going through Audit CAP for a situation where the HCEs did not receive the required contributions -- the NHCEs received very generous contributions. The IRS has not been very sympathetic to the situation at all... we're still working on negotiating sanctions.

[MSN]

KMG-

I'd be interested in knowing what the IRS was asking for in Audit CAP under those circumstances.

[KMG77]

Once I get a formal response to the proposal, I'll update.