401(k) Safe Harbor only deposit for the NHCE group

[Guest wolfpack]

Has anyone had any success in getting a plan approved (or believe you will) where the 3% non-elective safe harbor is the only employer allocation to the NHCES and additional Profit Sharing is allocated only to the HCES? Seems to me as long as the general test is passed it should be fine, however I do wonder about the wording in the document.

[Guest LJS]

Lately, when drafting a cross-tested plan (whether with the safe harbor 401(k) provisions or not) we have been using groups for allocating the discretionary profit sharing contribution. For example, we may say that Group A shall consist of all highly compensated participants and Group B shall consist of all non-highly compensated participants. We also state that within each group, the contribution will be allocated comp-to-comp. In addition, we state that each year the employer will notify the trustee in writing of the amount, if any, to be allocated for each group. That way, you're not tied into a set amount each year. Also, when adding the safe harbor 3% contribution to the plan, if that's all it takes to pass the general test, then the amount that the employer would notify the trustee to allocate to Group B (NHCEs) would be zero. While we haven't actually had one of these approved, we believe that the IRS will approve it. The IRS recently announced that you could use groups for allocating the contribution. We have had similar plans approved where the contribution formula would be as follows:

step 1: allocate 3% to everyone

step 2: allocate the balance of the contribution to the HCEs (up to contribution limitations)

step 3: allocate the balance of the contribution, if any, to the NHCEs

The IRS has also recently indicated that the 3% safe harbor non-elective contribution can serve triple duty: (1) satisfy the safe harbor requirement, (2) satisfy top heavy requirements, and (3) be used in the general test.

[Guest wolfpack]

Thanks LJS for your advice.