Safe Harbor Plans / 414s

[austin3515]

Is a Safe Harbor plan deemed to satisfy 414s if the HCE's are excluded from the 3% SHNEC?  Logic tells me no, as you could just exclude HCE's from the SHNEC and then exclude everything but thought I would check!

[Belgarath]

I agree with your logic (that is, no, it isn't deemed to satisfy 414(s) just because the HC are excluded.) And although you would always pass the 414(s) compensation ratio test in your scenario, compensation that uses other than the 414(s) "safe harbor" exclusions must also use a definition that is "reasonable."

In real life, I would expect you would normally pass, but I don't believe it is automatic.

[austin3515]

Well, let's say the "reasonable" definition is that bonuses are excluded.  Now, all the HCE's are over $265K even without their bonuses.  What say you to that plan design?

 

[Belgarath]

I think I may have to retract my prior statement that you would always pass the compensation ratio test...

You technically, again, don't "automatically" satisfy a 414(s) definition, because there are only 3 permitted "safe harbor" modifications to 415 comp that automatically satisfy 414(s). Any other modifications (and excluding only bonuses would be an "other" modification") are subject to testing. And while excluding bonuses is "reasonable" I'm not sure about the issue below.

I'd have to double-check, but it seems to me that I recall exclusions of comp in excess of the 401(a)(17) limit wouldn't help in trying to pass the compensation ratio test, because the individual is considered as having 100% of compensation taken into account under the plan.

[austin3515]

Quote

I'd have to double-check, but it seems to me that I recall exclusions of comp in excess of the 401(a)(17) limit wouldn't help in trying to pass the compensation ratio test, because the individual is considered as having 100% of compensation taken into account under the plan.

No, it definitely hurts. That's why I added it to my example. If HCEs were not excluded from SHNEC, there wouldn't even be a question, it would clearly fail 414s.

 

[Kevin C]

We had the same discussion about two years ago.  I think it still applies. The title above is a link to the prior discussion.

[austin3515]

Now that is hysterical.  Same plan...