Plan Favoring NHCE

[Santo Gold]

We have a 401k plan with match (not a safe harbor) for a public library, with only 5 eligible employees, none of whom are close to being HCEs.

The Library's director is over age 50 and will contribute the full elective deferral max of $24,000, including catch-up plus receives a match of around $2,000.

Can the Library Board make an additional employer contribution for her, perhaps up to $33,000, without giving any additonal employer contribution to the other NHCEs? With no HCEs there would not appear to be any discrimination issues. The plan would have to be amended to allow for individual rate groups and this probably could not take effect until 2016, but once that is in place, would this fly?

I think the idea is that she would go the Board and ask that her compensation be reduced by the $33,000, and the Board would then simply deposit that for her as a PS contribution.

Thanks

[Lou S.]

Be careful of a disguised CODA. That's usually an issue in partnerships where partners kind of pick and chose what their contribution will be but it could possibly be extended in this case, though I doubt that would be an issue.

From a nondiscrimination standpoint, there is absolutely no problem with what you propose.

The final question would be, what does the document say? Does it allow for differential rate groups by classification that would allow this employee to receive the allocation without giving any to other employee?

If you are talking about 2016, then there is more than enough time to amend the plan to make it happen. If you are trying to do it for 2015 with amendment, be careful if their are currently no conditions for receiving a year end contribution from the employer.

[Santo Gold]

Thanks Lou - We were thinking about this more in terms for 2016 (there documents still needs restated and that would be a good time to put this in there).

[AndyH]

Is this a governmental plan? (I know some libraries are and others are not). If so, there could possibly be nondiscrimination rules under state law.