so much for safe harbor, but...

I've got a plan that is not top heavy.  In year 2, the owner realized the safe harbor 3% contribution was going to be too much of an expense.  The notice had the usual "we'll warn you at least 30 days out if we suspend the contribution" language in it, and indeed we amended in January 2017 to eliminate the SH, and the employer made the 3% deposits up through mid-February.

So now - I haven't run my ADP test yet, but I'm curious if the plan does fail, would I be able to use the seven weeks of safe harbor contributions in my ADP test?  Since safe harbor contributions are technically qualified, I suppose there's a shot of dumping them into the test.

Anyone try this before? 

(I haven't thought this out completely yet, but I presume I'll have the owner's own 3% amount working against me.)

The safe harbor was the only 2017 contribution beyond the 401(k).  (So I definitely don't want the owner having any QNEC outside the 401(k) test.)

If there's no regulatory hangup to it, I'll then double-check my plan document to make sure there's not further restrictive language.  (So at this point, I'm looking for at least theoretical justification.)

Thanks..

-bri

the original "notice 95-52" on safe harbors,  section VIII Part D

D. Qualified Matching Contributions and Qualified Nonelective Contributions

To the extent they are needed to satisfy the safe harbor contribution requirement of section V.B, safe harbor matching and nonelective contributions may not be used as qualified matching contributions and qualified nonelective contributions, respectively, under any plan for any plan year. For example, if a plan satisfies the safe harbor contribution requirement using a safe harbor nonelective contribution by allocating a 7- percent safe harbor nonelective contribution to all eligible employees, contributions in an amount equal to the first 3 percent of each employee's compensation may not be used as a qualified nonelective contribution under the ACP test. However, safe harbor nonelective contributions in an amount equal to the remaining 4 percent of each employee's compensation may be used to satisfy the ACP test (subject to the requirements of § 1.401(m)-1(b)(5)).

...............

wow, the IRS thought someone might actually put in a 7% safe harbor!

so I guess since you are no longer using them to satisfy the safe harbor you can use them as a QNEC. they meet all the other conditions required of a QNEC. even the title refers to them as QNECs.

...........

I suppose if you had enough new NHCEs enter the plan after the safe harbor was stopped you could fail coverage

Yes, you can use them in the ADP test.  Assuming the plan document is drafted optimally, you can use any portion of them in the ADP test.  Leaving some of the 3% contribution out of the ADP test (while still passing coverage for the nonelective contributions not shifted into the ADP test) often is a better testing strategy.

To Tom's point - I suspect they were "needed" to satisfy the safe harbor requirement because for the first month-plus, the plan was still operating under the safe harbor rules.  So I might be a little more leery about suggesting no safe harbor rules needed to be followed for the plan year....which, sure, then would open up their use.