Safe Harbor Match to HCE

[metsfan026]

We have a client that made the Safe Harbor Match to all of the Non-Highly Compensated employees.  When it comes to the HCE there are three, the owner, his wife and their son.  Obviously there's no such thing as discrimination to a Highly Compensated Employee and they don't have to make the Safe Harbor Match to themselves.

I assume there is no issue, then, if they want to provide the Safe Harbor Match to their son, but not themselves?

I don't see an issue, I just want to make sure I'm not overlooking anything.

Thanks!

[Paul I]

You have to follow the plan document.  For example, if it says all HCEs are excluded from the SHM, then the son doesn't get the SHM, or, If it says HCEs get the SHM but the owner and his wife are excluded, then the son gets the SHM.

It is easy to say that a plan can discriminate against HCEs, but keep in mind that HCE participants have a right to any benefits the plan document provides for them.  The plan administrator cannot assume that HCE benefits are always subject to the discretion of the plan administrator regardless of the plan provisions.

[metsfan026]

13 minutes ago, Paul I said:

You have to follow the plan document.  For example, if it says all HCEs are excluded from the SHM, then the son doesn't get the SHM, or, If it says HCEs get the SHM but the owner and his wife are excluded, then the son gets the SHM.

It is easy to say that a plan can discriminate against HCEs, but keep in mind that HCE participants have a right to any benefits the plan document provides for them.  The plan administrator cannot assume that HCE benefits are always subject to the discretion of the plan administrator regardless of the plan provisions.

So if it says it's discretionary, they are allowed to give to the son and not the parents?

[Belgarath]

Yup

[Paul I]

Yes, but be careful in drafting the match provisions and the timing of when amendments can be made to the plan.  For example, if the SHM is described broadly as discretionary, then the plan would have prescribed notice requirements and could be subject to the "maybe SHM" rules which could affect all participants; or, if the plan has an SHM for NHCEs and discretionary match for HCEs, the match levels and match rates together could break the safe harbor.  Also be mindful of the plan design if the intent for the SHM is to be an ADP safe harbor or both an ADP and ACP safe harbor.

You may want to determine the goal the parents have in mind for contributions made to their son's account.  For example, if they only want the son to have more contributed to his account, they may be able to increase his salary and have him increase his deferrals while still excluding him from the SHM.  This could get the son to the same place without complicating the plan design.  If they need to justify the salary increase, they can increase his hours or his responsibilities.

Sometimes the plan sponsors can be myopic and they do not consider easy and available alternatives that can get them a desired result without messing around with the plan design.

[CuseFan]

Agreed - discretionary doesn't mean do as they want carte blanche, must follow the plan document.