HIGHLY COMPENSATED EMPLOYEES ONLY

Plan with highly compensated employees only - can they max out on 401k deferral amount (no testing)

Yep.

I'd guess the HCE's will be KEY... or at least most of them.  If and when they hire a NHCE, the plan will most likely by Top Heavy.  That has it's own challenges.  And then they will be hampered by the ADP test. 

Not necessarily all keys.  For example, two owners plus one or more highly paid employees who are not officers.  

Thank you that is what I thought - there are only 2 employees and both are highly compensated- when and if time comes to hire non highly compensated employees they will need to safe harbor I would think

Actually the comment about the Key is interesting.  If there is one Key and one non-key HCE and the Key gets 60% of the assets is the other HCE due a TH minimum?  Might be a fact set that doesn't happen much but seems like it is "yes" the one HCE would be due a TH minimum. 

7 minutes ago, ESOP Guy said:

Actually the comment about the Key is interesting.  If there is one Key and one non-key HCE and the Key gets 60% of the assets is the other HCE due a TH minimum?  Might be a fact set that doesn't happen much but seems like it is "yes" the one HCE would be due a TH minimum. 

That is the scenario- one key one non key - both highly compensated - so I think there will be a TH minimum due 

We were just discussing this scenario and (I think) you could set the plan up as a SH, excluding HCEs.  That is deemed to meet SH requirements, and the fact that no one actually gets the SH is immaterial.  Any employer contribution at all would trigger TH though.

what if the employee that is currently highly compensated (not key) falls below compensation level

would the  remaining HC be limited to 2% deferral?

1 hour ago, Bird said:

We were just discussing this scenario and (I think) you could set the plan up as a SH, excluding HCEs.  That is deemed to meet SH requirements, and the fact that no one actually gets the SH is immaterial.  Any employer contribution at all would trigger TH though.

That is brilliant.

14 minutes ago, jeanh said:

what if the employee that is currently highly compensated (not key) falls below compensation level

would the  remaining HC be limited to 2% deferral?

 

 

Are you using current or prior year testing?

Does the HCE who falls below the comp limit and become an NHCE continue to make deferrals or not? Because what ever that 1 NHCE is deferring will be your ADP for NHCEs in the year thay are an NHCE.

26 minutes ago, Lou S. said:

Are you using current or prior year testing?

Does the HCE who falls below the comp limit and become an NHCE continue to make deferrals or not? Because what ever that 1 NHCE is deferring will be your ADP for NHCEs in the year thay are an NHCE.

But if the plan was a safe harbor to NHCEs only, since that participant is NHCE, he/she gets the safe harbor and ADP test not a problem.  Otherwise, what Lou S. said.

Mike

using current year testing - the HCE who drops below the comp limit to become NHCE will not contribute - so the ADP would be 0% thus limiting the HC to 2%??? is what I thought.

I suppose by making it a safe harbor match to NHCE only  - then NHCE who is not contributing would get no match and you could avoid the ADP also

7 minutes ago, jeanh said:

using current year testing - the HCE who drops below the comp limit to become NHCE will not contribute - so the ADP would be 0% thus limiting the HC to 2%??? is what I thought.

I suppose by making it a safe harbor match to NHCE only  - then NHCE who is not contributing would get no match and you could avoid the ADP also

this would solve the TH issue also if only employee deferrals and SH?

38 minutes ago, jeanh said:

using current year testing - the HCE who drops below the comp limit to become NHCE will not contribute - so the ADP would be 0% thus limiting the HC to 2%??? is what I thought.

 

If the NHCE ADP is 0% the HCE is limited to 0%, not 2%.

Jean,

I would take Bird's recommendation above.  Make this a safe harbor non-elective plan excluding HCE's from contribution asap.  The only two real concerns are a potential NHCE employee that is going to be owed a 3% safe harbor contribution, and if a profit sharing is done, making sure you don't miss TH requirements.  I wouldn't do a SH Match plan right away.  It doesn't solve TH requirements if profit sharing is made.

39 minutes ago, K2retire said:

If the NHCE ADP is 0% the HCE is limited to 0%, not 2%. 

OOPS correct - forgot it is not 2 plus but 2 times - however catch up could be made correct?

 

Yes, catch up could be used.