May an HCE waive his profit sharing allocation?

[KateSmithPA]

We have a doctors group with a cross tested 401(k) plan. One of the doctors retired in March. The plan states that you do not get a profit sharing allocation if you are not there on the last day of the plan year, except for death, disability and retirement. So we gave the doctor a contribution. He does not want to fund a contribution for himself.

Can he waive his allocation? All the doctors are in the same allocation group.

If so, is there guidance?

Thank you.

Kate Smith

[AKconsult]

According to the ERISA Outline book, an employee may NOT waive an accrued benefit, even if he is an HCE. This is because of the anti-cutback rules of 411(d)(6)(B).

He may waive a future benefit, depending on the plan document.

[Lou S.]

I think he make an irrevocable election to be excluded from the plan forever if the plan document allows for it.

[MoShawn]

I think he make an irrevocable election to be excluded from the plan forever if the plan document allows for it.

Isn't that a one-time thing that must be done prior to becoming a participant?

[Lou S.]

I think he make an irrevocable election to be excluded from the plan forever if the plan document allows for it.

Isn't that a one-time thing that must be done prior to becoming a participant?

Maybe. I've only actually seen it done once and I think he did opt out before becoming a participant but I thought you could do it prospectively at any time but to be honest I haven't checked in a while.

[John Feldt ERPA CPC QPA]

The exception for "retirement" is certainly defined in the document - maybe re-read its meaning again to confirm that the exception was truly met?

Otherwise, I think you are stuck and may want to add a note for future documents: put each participant in their own allocation class, maybe even exclude HCEs from SH if not already the case.

As I'm sure you know, the company funds the contribution, not the doctor personally. So he should not have individual control over this, regardless of how the business internally accounts for these plan costs. If he could decide this personally, then the amount would be an employee deferral and 402(g) could be a problem.

[Bill Presson]

If the doctors are each in their own group, can the employer choose to not make a contribution for his group?

[david rigby]

Can he save some FICA tax?

[Lou S.]

If the doctors are each in their own group, can the employer choose to not make a contribution for his group?

I believe the answer to this question is yes. Though the IRS might challange it as a disguised 401(k), especially if the HCEs are self-employed partners. It is usually a good idea to document at the organization level the zero allocation rate for various groups.