Excluding a NHCE from safe harbor

Takeover plan excludes HCES from the safe harbor match as it has non-physician professionals who are high paid and the owner physician does not want to give them the match.  One of them made just less than $120,000 in 2017 and so we started up the pay period SH match for 2018 and the owner is not happy about it.  Of course the plan cannot be amended at this point for 2018.

Looking ahead though, if the plan was amended for 2019 to exclude this class of employees from the SH match (instead of excluding HCEs), my concern would be testing.  There would be say 4 HCEs including the owner excluded and maybe one NHCE professional  how would ADP testing be done on this excluded/disaggregated part of the plan?   

FYI - the plan is not top-heavy at this time - thankfully!

Comments?

Tom

any NHCE eligible to defer must receive a safe harbor.

so I don't see how that is possible. there is no 'safe harbor pass for free' for part of the plan and 'test the other part of the plan that has people who don't receive the safe harbor'

so the only way you could beat that, I guess, is to exclude the group from deferring entirely. Bet that would go over well for the folks who are used to deferring.

Tom is absolutely correct, but we have similar situations and a way to accomplish what the owner wants: make the employee pay for the match!  That is, instead of paying the employee his full compensation, withhold some of it and make that contribution to the plan (this is NOT a deferral; it is a non-payment of income to the employee).

This is most common with professionals hired to work for the the firm, and it is usually accomplished by making sure that the employee knows that his compensation PACKAGE includes any employer contributions to the retirement plan; it might also include other things like health insurance premiums, car allowances, continuing medical education beyond a certain dollar amount, etc.  Thus, the employer now no longer really cares how the employee divides up this compensation package, since the total amount doesn't change.  If he is given a compensation package of $120k, then his "salary" is what is left after the other items are deducted from that compensation package amount to get to his salary.  

The result is to treat that professional much as any partner in the firm would be treated.  We have this system for many many professionals and semi-professionals (like, high paid office managers of large practices) in our client base.  

The important thing is to make sure the employee understands the "deal" from the day he or she is hired so there is no fighting about it.

You could create a separate plan if it can pass coverage,  However, cost will far exceed benefit if all they are trying to save is a match for an occasional NHCE.