401(k) Plan w/o NHCE

[Hoard1]

Two thoughts. Could an Employer with only HCE's(four Owners 25% each) establish a 401(k) Plan? If so how would you test? I sapose you could set it up as a safe harbor.

Second, what if a Plan lost all NHCE's due to termination or quit. If Plan was using current year method and ther were no eligible NHCE's how would you test.

If your ADP for NHCE is zero, if you test at lessor of 2+ or 2* the result would be zero.

Any thoughts?

[Jon Chambers]

A plan with no NHCE's is deemed to pass. It's also almost certainly super top-heavy.

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Jon C. Chambers

Principal

Schultz Collins Lawson Chambers, Inc.

(415) 291-3004

[Hoard1]

Is there a cite for that position.

[Earl]

My thought is a 4 group new comp plan. No payroll taxes, contribution flexibility, no 402(g).

No 401(k) is needed.

[Guest rhp]

Take a look at 1.410b-2b5.

[david rigby]

With respect to Jon's comment on super top-heavy:

The presence of 4 25% owners will certainly create 4 5% owners, thus all employees are Key Employees. Clearly that creates a top heavy ratio of 100%. But whether that creates a problem anywhere would depend on whether there is any other plan, or whether there are any other employees in the future, and whether the affected plans have repealed the IRC 415(e) provisions.

[MWeddell]

Perhaps the citation you want is Treas. Reg. 1.401(k)-1(B)(2)(i)(flush language after subparagraph (B)). It basically says one doesn't fail the ADP test when there are only highly compensated employees eligible. I'm sure the 401(m) regulations contain a parallel provision for the ACP test.