Safe harbor contribution for non-equity partner

[Guest Hnicolas]

I'm trying I sort through a situation I'm facing, and I would appreciate any help I can get. Thanks in advance.

Assume a small law firm with two tiered partners - equity and non-equity partners. Non-equity partners are paid a guaranteed salary, do not get a portion of profits, and are not responsible for debts.

Firm tells the non-equity partners they must pay the safe harbor amounts out of salary - 1/3 of the amount it would take the Highly Compensated participants to max out.

Question: Should the employer or the non-equity partner pay this match? Where should I look for more information on this?

Again, thank you for any advice or information.

[jpod]

First question, the answer to which will lead to further questions: Are the non-equity partners treated as partners for tax purposes and receive K-1s and no W-2s, or are they "partners" in name only?

[Guest Hnicolas]

They get K1s. However, unlike partners, they haven't yet bought in to the partnership.

[jpod]

I don't know why the agreement between the partnership and each non-equity partner can't provide that the matching contribution, safe harbor or otherwise, reduces his or her guaranteed payment. They have to have some mechanism for doing this so that the partnership doesn't get caught short at the end of the year. The non-equity takes the match as an adjustment to gross income on the front page of the 1040, just like for the elective deferrals.

[Guest Hnicolas]

The partnership does not provide non- equity partners with a partnership agreement and nowhere is there a document spelling out who will make the matching payments.

So the non-equity ("special partner" in the firm parlance) gets caught out with a $10k matching obligation a week before it's due.

This is after already maxing out on the elective contribution. Nice in some ways, a little shocking in others.