Client question about discretionary match.....need feedback

[Pammie57]

i have an S corp with one owner who has two other employees.

Employee 1 - 44,000 in wages (owner)

Employee 2- 53,540 in wages

Employee 3- $31,250 in wages

Essentially, my goal is to give employee 2 the benefit of a 401k and company match while giving little as possible to employee 3.  I am thinking we can use a discretionary match with tiers where full time salary employees get 100% up to 3% (employees 1 &2)

full time hourly employees get 100% up to 1% (employee 3). 

[Mr Bagwell]

How would you pass BRF?

[BG5150]

Does the owner have to get anything?  If not, just exclude the owner.

[Pammie57]

So if the owner is excluded - he can use the different types of classification (hourlly/vs salary) and give each a different level of match with no issues?  BRF? etc.?  Thanks...new territory here for me.

[401king]

Why not profit sharing? Less restrictive than a match formula - you wouldn't have to give anything to EE 3.

[Mr Bagwell]

18 minutes ago, 401king said:

Why not profit sharing? Less restrictive than a match formula - you wouldn't have to give anything to EE 3.

You will have coverage problems with this idea.

[401king]

1 minute ago, Mr Bagwell said:

You will have coverage problems with this idea.

Even if providing $0 to the owner?

[Mr Bagwell]

2 minutes ago, 401king said:

Even if providing $0 to the owner?

Ah.... No.  Sorry, I have in my head the owner would like to get the profit sharing.

I haven't met too many owners so gracious to give the employees something and themselves nothing.  Very rare.

 

[Pammie57]

Owner wants to participate..... & with these few employees - I figure it will be top-heavy at some point and might have to give all  NHCE 3% in future years  or gateway possibly (talking if we go CT PS route)

Am I thinking correctly here?  

[Mr Bagwell]

I think the first piece to solve is how much does the owner want to participate?  How much does owner want to defer?  Can he get to that number?  Is the owner age 50 or greater?

Depending on that answer is how I decide to move forward.

You may have a plan that becomes TH the first year.

12 minutes ago, Pammie57 said:

give all  NHCE 3% in future years 

all non-Key*

I'm really smelling a 3% safe harbor is best.  The cross testing is good option, but not giving employee 3 PS is not going to be a smooth as you think.  Especially if plan goes top heavy.

[BG5150]

5 hours ago, Pammie57 said:

So if the owner is excluded - he can use the different types of classification (hourlly/vs salary) and give each a different level of match with no issues?  BRF? etc.?  Thanks...new territory here for me.

Exclude HCE

Discretionary match:  hourly get match 1, salaried get match 2.  Automatically passes BRF and ACP.

But if the owner does not want to get a match, is it worth it to even have a plan and pay $1,500/yr  TPA cost (plus carrier fees) with less than $2000 ER contributions?

How much are those NHCE EE's deferring?  Maybe a SH Match?  is that person (hourly) making $30k a year deferring a lot?

[BG5150]

If you want to do a PS, you could use the ABT to pass coverage if the demographics are suitable.

[Larry Starr]

9 hours ago, Pammie57 said:

i have an S corp with one owner who has two other employees.

Employee 1 - 44,000 in wages (owner)

Employee 2- 53,540 in wages

Employee 3- $31,250 in wages

Essentially, my goal is to give employee 2 the benefit of a 401k and company match while giving little as possible to employee 3.  I am thinking we can use a discretionary match with tiers where full time salary employees get 100% up to 3% (employees 1 &2)

full time hourly employees get 100% up to 1% (employee 3). 

Seems to me everyone is missing the easy answer.  You can do a PS plan allocation of, say, $100 (or anything else you want to allocate under the general terms of the plan).  Then do a -11g amendment adding the amount you want for employee 2 (I assume Ee 2 is NOT an HCE, right?). QED.