Safe Harbor Discontinued / Any Creative Solutions for HCE?

[Susan S.]

Business owner/HCE is regretting his decision to stop the safe harbor match, realizing how much his deferrals will be limited. He has a calendar year plan and wants to reinstate safe harbor mid-year in 2014, but since it is not a new plan, I don't believe that is allowed. Please correct me if I am wrong here.

Are there any other creative solutions that can be implemented for 2014 that would allow him to maximize his salary deferrals?

[Tom Poje]

well, without knowing other facts

how many NHCEs are there?

if he makes max comp and defers max he would have around 6.86%

so to pass testing it is quite possible that a QNEC/QMAC could be made that is actually less than what a safe harbor would be.

[Bird]

Depending on demographics, a profit sharing contribution formula might be designed in a way to get most of the dollars to the owner. This usually works best as the second step after using the 3% nonelective safe harbor, where the owner is trying to max out total contributions at $52,000. But it might still look pretty good if he only has a couple of employees.

The safe harbor match might be better if is content to max his deferrals at $17,500.

Unfortunately adding either SH back to an existing plan in 2014 is not permitted.

[Jim Chad]

He might start a new plan year with safe a harbor from 4-1-14 to 3-31-15. And then switch back to a calendar year plan.

[ESOP Guy]

Don't forget if he is at least 50 the catch up doesn't count for any test. So a 50 year old HCE can always def the catch up amount.