Section 404 and Non-Profit

A small Non-profit entity has a 401k Profit Sharing Plan with Safe Harbor Non-elective contributions. The Discretionary contribution is set up as each participant is in their own allocation group. There are no highly compensated employees.

All eligible received a 3% Safe Harbor Non Elective. They want to give one particular employee a Discretionary contribution to reach the 415 Limit. This exceeds 25% of that participants W-2 income. Are they in violation of Section 404 since that employee is the only one benefitting from the Discretionary and should be limited to 25% of Benefiting Employee compensation? Since the other employees received the 3% Non-Elective are all compensations considered for purpose of determining Plan compensation for Section 404? Because this is a non-profit does Section 404 even matter?

2 hours ago, Guest_Question said:

Since the other employees received the 3% Non-Elective are all compensations considered for purpose of determining Plan compensation for Section 404?

Yes, if this was a taxable entity and that limit applied, all employer contributions and all employees eligible for such would be considered for the 25% deduction limit.

2 hours ago, Guest_Question said:

Because this is a non-profit does Section 404 even matter?

No, 404 does not apply.