3% SHNEC excludes HCE's - 414s testing??

[austin3515]

3% Safe Harbor Nonelective excludes HCE's. Need I concern myself with the definition of compensation/414s? So for example, may I exclude bonuses and overtime from the calculation of the Safe Harbor? I will be doing some profit sharing for the HCE's, but all of the nondiscrimination testing would of course be done using a 414s definition of comp.

[Kevin C]

The compensation definition used to determine the 3% SH has to satisfy 414(s) [see 1.401(k)-3(b)(2)], so yes you need to be concerned with 414(s). The question then becomes how do you test the definition? I can see how you could read 1.414(s)-1(d)(3)(iii) to say you don't consider the excluded HCEs when testing the compensation definition. But, there's still that pesky phrase in 1.414(s)-1(d)(1) that says "... if the definition of compensation does not by design favor highly compensated employees ..." If the SH compensation definition doesn't satisfy 414(s) when you count the HCEs, I think you would have an uphill battle trying to argue that your compensation definition designed to reduce the NHCEs SH contribution, but still allow the HCEs to defer the max, isn't designed to favor HCEs.

[austin3515]

Pretty much what Corbel said in terms of yay or nay, but you're explanation was very helpful. I agree with the logic you're using...