Safe Harbor Nonelective "maybe" - eliminate HC?

[Belgarath]

Suppose you have a 401(k) plan utilizing the "contingent" or "maybe" provision for the nonelective 3%.

When the employer decides, in October, to provide the supplemental notice and amend the plan to provide the 3% nonelective, can they, as part of that amendment, elect not to provide it to the HC? Or, since the current prototype document says, to paraphrase, that there are no exclusions from the definition of "eligible participant" for purposes of the ADP test safe harbor contribution, would the employer be precluded from making that change - in other words, the HC exclusion from a safe harbor contribution (if made) wouldn't be discretionary other than amending prospectively for the NEXT year?

I started out thinking the former, but I'm gravitating to the latter. Seems like an impermissible cutback if you take the first approach.

Thoughts?

[Lou S.]

Are you trying to eliminate SH 3% for 2013 for HCEs? Is so that would have had to have been in your maybe notice last year. If you are trying to do in for 2014 doesn't sound like a problem, assuming your prototype allows for it which I'd think most do.

[Belgarath]

Yeah, the question is whether you can do it for the current year. I'm just trying to find out if you have the flexibility to determine, year to year as part of the safe harbor amendment, as to whether you will give the 3% to the HC for that current year or not.

[Lou S.]

Yeah, the question is whether you can do it for the current year. I'm just trying to find out if you have the flexibility to determine, year to year as part of the safe harbor amendment, as to whether you will give the 3% to the HC for that current year or not.

I could be wrong, but I don't think so.

Though if you cross test with seperate rate groups you could probably do a 3% PS and offset by the 3% safe-harbor and accomplish basically the same thing. A few more hoops and might not be perfect but likely going to give the result you want almost all the time in small plans.

[Belgarath]

Ah, good point. That would work nicely. The situation here is that they don't have any money half the time, so they don't know until late in the year as to whether they want to contribute 3% for the HC. So they can just exclude the HC from the safe harbor, and if they find out late in the year that they have enough to contribute for themselves, just contribute the 3% as you suggested. Gateway, TH, and everything else will be satisfied for the NHC by the 3% SH.

I should have thought of that myself - thank you for the input!

[austin3515]

Since the Plan does not include any Safe Harbor, it would not be an amendment to the safe harbor provisions. I think that would be as sound a reason as any.

I think one possible pitfall would be if your safe harbor notice was specific regarding who would receive the Safe Harbor Contribution if it ever came to pass. So if your notice says "All eligible participants would receive the SHNEC, if any" as opposed to something more vague like "the Plan might be amended to provide a Safe Harbor Nonelective Contribution." With the latter you wouldn't be going back on a promise you made earlier.