HCEs excluded for SH

[TH 401k]

The plan provides a Safe Harbor Non-Elective Contribution (SHNE) and excludes Highly Compensated Employees (HCEs) from safe harbor contribution. In this situation, there are five HCEs in the plan, and the client wishes to provide the SHNE to only two of these HCEs while giving no safe harbor contribution to the remaining three. The question is whether this allocation is allowable under IRS regulations, and if permissible, which specific regulations authorize it. Refer the adoption agreement snip.

[Belgarath]

I don't think you need to bother with IRS regulations. A plan must operate according to its terms, and this specific language does not appear to allow such an allocation, absent some additional "notes" in the AA or overriding language in the body of the document. Most of these HCE SH exclusions that I've seen have a short additional bit of language to the effect the discretionary contribution is for "any or all HCE's" or something like that. 

P.S. are you certain that you are looking at a Cycle 3 document? The slightly less flexible language in your excerpt, or similar language, was present in some Cycle 2 documents that I've seen. Then updated for Cycle 3.

[austin3515]

Is everyone in their own group for profit sharing? That would be the typical method of accomplishing this.

[TH 401k]

16 minutes ago, austin3515 said:

Is everyone in their own group for profit sharing? That would be the typical method of accomplishing this.

There is no profit sharing contribution. 

[TH 401k]

21 minutes ago, Belgarath said:

I don't think you need to bother with IRS regulations. A plan must operate according to its terms, and this specific language does not appear to allow such an allocation, absent some additional "notes" in the AA or overriding language in the body of the document. Most of these HCE SH exclusions that I've seen have a short additional bit of language to the effect the discretionary contribution is for "any or all HCE's" or something like that. 

P.S. are you certain that you are looking at a Cycle 3 document? The slightly less flexible language in your excerpt, or similar language, was present in some Cycle 2 documents that I've seen. Then updated for Cycle 3.

There is no any other additional comments in adoption agreement. I think the snip which I have mentioned is from C3 document.

[austin3515]

If this a calendar 2025 plan year end it’s not too late to add the provision.

[TH 401k]

3 minutes ago, austin3515 said:

If this a calendar 2025 plan year end it’s not too late to add the provision.

Can the plan be amended for the 2026 plan year to allocate SHNE contributions to two HCEs and zero SHNE contributions to the other HCEs for that same plan year? Is it required to specifically mentions the name of the participant in the amendment? Or any other notes in adoption agreement?

[austin3515]

I don’t see why you couldn’t do that but not sure how you do it without names. CFO and CEO might be the same as names anyway. Again the normal approach is profit sharing. Maybe the reluctance is vesting though.

[austin3515]

you could ask an ERISA attorney if an exclusion like this would work.  You would uncheck the HCE exclusion box in the Safe Harbor section and instead say in the "Other" box: "The Employer shall determine each year, on  a discretionary basis, which HCE's (if any) shall receive an allocation of Safe Harbor Nonelective Contributions.  The Employer may further determine each year the amount of each HCE's allocation of Safe Harbor Nonelective Contributions, provided the allocation does not exceed 3% of Compensation for any HCE."

This does not get you out of any top-heavy minimums mind you.  There is no checkbox for the above which is why you would want to check with ERISA counsel.  You might even submit it to Relius and see what they say.  I think they'll give you a pretty good answer.  There is nothing legally wrong with what I wrote as far as I know.

Curious to hear what Belgarath would say!

[CuseFan]

At this point, I agree, why not do individual PS groups and just give a 3% PS to the HCEs they want. If vesting is wanted, make the PS 100%. This would even give some flexibility to do 0-9% for any HCE provided you can pass cross-testing.

[austin3515]

Sure would be nice what the issue is with profit sharing. You have said the plan does not include a profit sharing provision.  I suppose there could be $2MM of profit sharing from past provisions on a 6 year graded schedule.  If that is the case then I get that.  But if you're goal is just to keep it simple, everyone in their own group is a lot simpler than the language I mentioned.

[Paul I]

Before adding a new contribution source to the plan design, find out it the plan is top heavy and if yes, are any of the HCEs non-key employees.

[BG5150]

On 11/11/2025 at 12:10 PM, TH 401k said:

There is no profit sharing contribution. 

Does this mean there is no PS for the year, or there is no PS allowed in the doc?  I can probably count on one hand the number of 401(k) plans that didn't allow a discretionary contribution whether or not they used it.