EXCLUDING EMPLOYEES FROM PARTICIPATION AND/OR EMPLOYER CONTRIBUTIONS - PLEASE HELP!

[Guest bariww]

I have a non-profit organization looking to implement a 401(k) plan. Total of about 60 employee's all of whom are NHCE's. Approximately 20 of them are teachers. The organization would like to do 1 of 2 things and I'd love to get input from the group on if it can be done.

First, they would like to offer the plan to everyone, but only match the teachers. Can they exclude everyone but the teachers from receiving the match but allow everyone else to participate through salary deferrals?

The second and less attractive option for them is to exclude everyone but the teachers from participating in the plan and therefore only offer the benefit to the teachers.

I suppose that because there are no HCE's in the plan they would automatically pass all the testing, but it seems like allowing this could potentially open up a loophole for employers who want to exclude employee's by simply excluding certain types of compensation and/or intentionally keep an ee's comp under 110k.

Any comments would be greatly appreciated!

[Tom Poje]

compensation to determine HCE status is based on 415 comp, not alloaction comp. so there is no loophole in which you can exclude whatever compensation for determining who is an HCE.

[jpod]

Doesn't sound like there are any legal obstacles, but isn't it possible that the vendor/recordkeeping pricing structure would be less favorable if plan is limited only to teachers?