6% Employer Contribution For 401(k) & Cash Balance Plans

[metsfan026]

I know the general rule is that an employer can only contribute up to 6% into a 401(k) Plan when they are also doing a Cash Balance Plan.

I just wanted to confirm that the 6% limit also includes the Safe Harbor Matching contributions that they are currently making?  So if they are making a Safe Harbor Match, that's going to severely limit (or possibly eliminate) the opportunity to make a Profit Sharing Contribution as well?

I think I know the answer, I just wanted to be 100% sure I wasn't confusing myself.

Thank you!

[truphao]

this is correct.  Keep in mind that 6% limit is the deduction issue and not the complianceconcept.  So, the different sections of the code are here in play.

[metsfan026]

1 minute ago, truphao said:

this is correct.  Keep in mind that 6% limit is the deduction issue and not the complianceconcept.  So, the different sections of the code are here in play.

Right, so they can technically make a larger contribution and just not get the deduction for it?

[truphao]

if they make a larger contribution in 2026, they can split the deduction between 2025 and 2026 tax years.  This will create an issue to watch out for in 2026 but there is nothing wrong with kicking the can down the road :).

[Bill Presson]

Also remember that limit only applies if the cash balance plan is NOT subject to the PBGC. 

[BG5150]

I thought non-deductible contributions are allowed in the plan.

Or is it that there can be, but a 15% excise tax applies (each year it's in the plan)?

[David D]

What you stated in your original question is why typically when you have a 401k plan with a cash balance not subject to PBGC, it is better to have a Safe Harbor Non Elective plan than a Safe Harbor Match plan in regards to staying within the deduction limits when trying to pass 401a4 testing.

[Jakyasar]

Keep in mind that if you have an eligible payroll large enough, 31% test may allow you to make a DC plan contribution (including all employer portion i.e. all match and PS) well in excess of 6%, all depends on the CB contribution level.