Pre-funding Employer Contributions

[SMB]

Client sponsors a safe-harbor 401(k) plan (using the 3% employer non-elective). The Plan has an end-of-year employment requirement to receive the "discretionary" employer contribution.

Owner would like to pre-fund some of the employer contribution for the year. Actually, he'd like to make his entire salary deferral contribution and pre-fund his entire employer contribution.

I am certainly comfortable with his pre-funding the 3% safe-harbor for all participants based on participant comp to date, since there is no service or EOY requirement to receive same. He obviously can't pre-fund any of the staff participants' "discretionary" contribution, as he won't know until December 31st who's still employed and eligible for same. Curious, though, whether his pre-funding his entire discretionary contribution would be considered blatantly/possibly discriminatory?

Thanks for any and all input.

[401king]

I have had this question before, too. It is discriminatory in that you are allowing employer contributions to only one person's account, when it should be made on a uniform and consistent basis. The easiest way for me to describe how it is discriminatory to the client was that it allowed his investments to make gains, while the other participants were not allowed to take place in those gains. It's like allowing an investment type to only the owner, but not the employees.

[SMB]

401king,

Thanks for your reply. That was my assumption, also. However, I've been in this business long enough to now that what may seem "obvious" isn't always necessarily so!

SmB

[401king]

401king,

Thanks for your reply. That was my assumption, also. However, I've been in this business long enough to now that what may seem "obvious" isn't always necessarily so!

SmB

Sometimes the hardest part is trying to figure out a rationale that you can explain to the client that makes sense