Safe Harbor Match / Exclusion of Bonus

[austin3515]

Our Corbel VS PT Formatted appears to me to very clearly allow me to include bonus for purposes of determining the elective deferrals, but exclude bonus for purposes of determining the match. My definition satisfies 414(s) by passing the ratio percentage test.

I think some people argue that the issue is that an NHCE who gets a bonus, where an HCE does not, is somehow getting an inferior match as a result. To me it seems contrary to logic that the IRS would insist that employees in such a plan be barred from making payroll deduction contributions. But I do believe that is how some document providers feel. Thoughts?

[Belgarath]

I'm not entirely certain I understand what you are asking.

I agree that it is fine to exclude bonuses for purposes of a match, subject to passing 414(s) testing. Obviously, without passing the testing the opportunity exists for discrimination - pay HC's all on W-2, and pay NHC's 60% of their comp via bonus. Clearly discriminatory when you come to allocating a match.

[austin3515]

The question is not just can I exclude bonus for safe harbor match. It is can I a) both exclude bonus for safe harbor match AND b) include bonus for purposes of determining payroll deduction contributions.

As I mentioned, I'm passing 414s by a very wide margin. In fact it is specifically because the HCE's are getting such big bonuses relative to the staff that they don't want to match the bonus.

[Belgarath]

I see no problem with it.

[austin3515]

Me neither. I know some people do though., For example, Fidelity's preapproved plan does not allow a different definition of comp for SH Match and deferrals. I think the issue is that they are inferring that some NHCE's might end up with an inferior match to some HCE's due to the disparity. So HCE 1 gets not bonuses, but NHCE 1 does get a bonus and defers. The NHCE 1 gets no match on some of his deferrals while all of HCE's deferrals are matched. I think that is a very overzealous interpretation, akin to the IRS's belief that forfeitures can't be used for SH contributions. And I also think it would be ridiculous if federal policy denied the opportunity for someone to defer from a bonus, which I think counts for something.

I just lost a plan, and the new provider is questioning whether or not that provision was permissible, so I just wanted to see what others thought.

[Belgarath]

If you have a pre-approved plan that permits it, seems like it would be hard for them to argue that it isn't permissible. I wonder if some other provider might have decided not to allow it in their own pre-approved documents not due to legal reasons, but for administrative convenience. Sometimes they have some plain vanilla options only because they want only cookie cutter plans, or they don't want to deal with the 414(s) testing, or they don't want their clients to screw up because they (the clients) didn't test, etc., etc...

[austin3515]

Fidelity's documents allows all sorts of exclusions for all sorts of things. IT's a table where the rows are the comp items (bonus, overtime, etc), and the columns are the sources, with check marks as applicable throughout the grid. There is one column entiled "401k and SH Match", with separate columns for each of profit sharing, Safe Harbor Nonelecitve, Non-Safe Harbor Match, etc.