S/H 401(k) and General Test Based on Allocation Rates

I need help thinking this through:

Safe harbor 401(k) plan:  3% non-elective contribution to all eligible participants.

One of the 5% owners will be selling her interest in the company.  She’s over 70 and will still be working and receiving commissions paid as W2 comp.

Once her ownership is sold, the plan sponsor/remaining owners do not want to give her any more contributions.

One way to do this is to change from NEC to s/h match (prospectively) and hope she doesn’t defer.  (This is going to “hurt” the NHCEs.  Very few of them are deferring.  They will perceive that a benefit is being taken away from them.)

If we determine that the former owner will continue to be an HCE based on compensation, here is what I’m thinking:

Amend the document to exclude HCEs from receiving the SHNEC.  Change PS formula to new comparability – each in own class.

Give all of the HCEs (except for the one former owner) a 3% profit sharing.  Plan passes ratio % portion of the general test based on allocation rates.  (It fails miserably under benefits basis….most of the non HCEs are older than the HCEs). Theoretically everyone except the former owner is receiving the same contribution as before.

However, if the former owner fails to be an HCE in the future, this theory won’t work since all NHCEs must receive the SH contribution.

Does this sound correct and reasonable?

Why all the gyrations? Wouldn't just amending the plan to exclude the ex-owner do the trick?

What Mike said.

Could excluding her raise an age discrimination claim?  

I don't know why I didn't think of that to begin with.  Seems I do things the hard way first.  So as long as we can pass coverage by excluding "former owners" as a class, we should be okay.