Safe Harbor 401(k)/Additional Non-Elective Contribution

[k man]

An employer would like to give a safe harbor non-elective contribution to all NHCE's in the plan. however, he also wants to give a 3% non-elective contribution, subject to the plans vesting schedule, to only the HCE's. I know that this would be permissable if the employer gave the additional non-elective contribution to all the employees but is it ok to just give it to HCE's? Does it have to be tested if it is not be given to all participants? If it is ok, I would also like to know the legal basis or rationale.

[Guest Mr. X]

Just because it is a safe harbor plan does not mean that the nonelective contribution cannot be cross-tested. It can, and the only difference is that you cannot impute permitted disparity on the 3% safe harbor piece.

Therefore, in your case, like any plan where the nonelective contribution allocation formula does not fall under a safe harbor, it must be general tested in accordance with 401(a)(4).

[k man]

yes but cant you make the contribution a 3% profit sharing for everyone and make the contribution to the NHCE's subject to no vesting schedule. wouldn't this eliminate the need to do testing?

[Richard Anderson]

I see no reason that you couldn't do what you want, as long as the document language spells out what you are doing. The only contribution that has to be 100% vested is the safe harbor 3% to NHCEs. The document would have to specify that the 3% non-elective safe harbor contribution only goes to NHCEs. Any other discretionary non-elective contribution could have a vesting schedule attached to it. Also, the document would have to allow additional contributions by class or group, as a new comparability type plan does. Two classes could be set up; HCEs and NHCEs. The employer could then made a non-elective contribution of 3% (or any other amount that will satisfy 401(a)(4)) to only the HCEs. Even if you assume that a set up like this will have to pass a4, if the HCEs get a 3% contribution, there will only be one rate group if the plan is tested on a contributions basis. Every HCE will be in the rate group, and so will every NHCE, therefore it passes 401(a)(4) discrimination testing.

Are any of the adoption agreements for prototype plans allowing to choose between 100% vesting or a vesting schedule for the HCE 3% contribution if the HCEs also get the 3% safe harbor?