Safe Harbor and Profit Sharing

[401kay]

If a plan is Safe Harbor are you able to do discretionary profit sharing (like a new comparability model)? Where the owner wants a different end of year profit sharing contribution from the other employee. 

[Lou S.]

If your plan document allows, yes. It's quite common.

[401kay]

Thanks for the quick response! Is there anything we should look out for?

[Lou S.]

Pretty much anything you would look for on any cross tested profit sharing.  The 3% safe-harbor can kind of be thought of as the base or first layer in your allocation. Though the 3% safe harbor doesn't have any allocation conditions so sometime it can trigger an additional gateway contribution you weren't expecting for terminated employees.

[pmacduff]

remember that once you add a discretionary profit share you lose the top heavy free pass.  If the safe harbor is the 3% non elective (as opposed to the safe harbor match) then that should cover the top heavy requirement anyway but thought it worth mentioning.

[truphao]

you get a much better results from the Owner perspective with adding a Cash Balance plan if you are thinking in a direction of New Comparability PS design.  If money is there.

[BG5150]

11 minutes ago, truphao said:

you get a much better results from the Owner perspective with adding a Cash Balance plan if you are thinking in a direction of New Comparability PS design.  If money is there.

if money is there and the owner/employee demographics are there.

[truphao]

demographics works the same for New Comparability and CB designs, doesn't it?    The CB wins vs New Comp given everything else is equal

[Bird]

3 hours ago, truphao said:

demographics works the same for New Comparability and CB designs, doesn't it?    The CB wins vs New Comp given everything else is equal

There's the minor issue of contribution flexibility. This is a pretty dangerous assertion IMO.

[Lou S.]

8 hours ago, truphao said:

demographics works the same for New Comparability and CB designs, doesn't it?    The CB wins vs New Comp given everything else is equal

Maybe, maybe not. Some of the "drawbacks" may or may not include -

Required Contributions.

PBGC Premiums

Buying annuities for participants who elect them given the low interest rate environment

Potentially higher top-heavy benefits

Guaranteed interest credits in a time of extended market declines

Satisfying §401(a)(26)