NonElective Safe Harbor vs QNECs and QMECs

Can you please explain the difference between a safe harbor plan which makes a nonelective 3% distribution to employees vs a QNEC or QMEC in order to pass ACP and ADP testing? To me it seems that they are basically the same means to an end which is making the plan compliant, so what would be the benefits and disadvantages of using each?

With the 3% SHNEC, you lock in your cost in advance. With the others, your contribution is dependent on what the NHCs contribute.

Also the 3% SHNE generally provides a better base if the sponsor is making additional profit sharing contributions. We are just scratching the surface here.

The addition of the design-based safe harbors (3% NE or SH match) for the most part, in my opinion, rendered the QNEC and QMAC obsolete. There are many advantages to the SHNE or SHM compared to their "ancestors" and as Bird chirped, we're just scratching the difference.

And HCEs get the 3% Non-Elective Safe HArbor not just NHCEs assuming the plan has not excluded the HCEs which sometimes it does with class-allocated plans (allows owner family members for example to be excluded from an employer contribution to help with testing.)

I agree that ADPSH contributions are preferable to relying on QNECs and QMACs, but I hesitate to say that the latter are obsolete.

While not every plan product will necessarily contain a preapproved option for making non-corrective QNECs and QMACs, there's nothing to preclude a document architect from presenting drafters with such sources that can be funded ahead of time, i.e., regardless of the outcome of an ADP test. For example, some plans allow prevailing wage contributions to be treated as QNECs, which would allow such contributions to either be used to help pass an ADP test or be used as an offset to an ADPSH nonelective contribution. Such a plan might prefer having an ADP test rather than an ADPSH obligation.

In addition, there might be a use for treating ADPSH contributions as a QNEC or QMAC for a plan year that the employer discontinues its ADPSH. There was a time when any ADPSH contributions that had already made for such a year could be automatically treated as being a QNEC or QMAC for that purpose. However, now that plans with QACAs can have deferred vesting on the QACA contribution, employers may be unable to use such contributions to help pass the ADP test unless an amendment is adopted to fully vest the QACA source, i.e., turning the deferred-vesting QACA contribution into a QNEC or QMAC.

The biggest problem I see with QMACs and QNECs (and occasionally non-QACA ADPSH contributions) is with people thinking that full vesting is sufficient for calling a contribution a QNEC or a QMAC. I don't know why, but I see many instances of people forgetting about the distribution restrictions that are required for all these contributions. I like the idea of having a plan product that gives me a QNEC or QMAC source that has all the requirements built-in, if only to facilitate quick amendments with reliance when the facts and circumstances change.