Exclude some NHCE from discretionary match in SH plan

Plan has 3% SH and a discretionary match.

Can they exclude "junior executives" from the match?  Most of these will probably be NHCE.  Coverage is not an issue.

1 hour ago, BG5150 said:

Plan has 3% SH and a discretionary match.

Can they exclude "junior executives" from the match?  Most of these will probably be NHCE.  Coverage is not an issue.

Let me answer this the way I get my employees to think about the issue.... with a bunch of questions (I can always just give them the answer, but that's not the way we get them to learn and think these things through; I'd rather confirm their analysis than just give them the answer).

Why are you asking?  Do you think that you maybe can't do it?  What do you see as the issue or concern about doing this?  If you do it, what is the problem you are concerned about?

It's a good way of getting at the heart of the question and the reasoning for the proper answer.

FWIW.

Socratic method notwithstanding, no, they can't. I mean, they could, but they would have to exclude HCEs from the match as well since no HCE can receive a higher rate of match than an NHCE at the same deferral rate, and at that point you might as well just be subject to the ACP test.

2 minutes ago, C. B. Zeller said:

Socratic method notwithstanding, no, they can't. I mean, they could, but they would have to exclude HCEs from the match as well since no HCE can receive a higher rate of match than an NHCE at the same deferral rate, and at that point you might as well just be subject to the ACP test.

Perfect; now you have isolated the issue. I'll see what others have to say, as now I believe it's more likely you will get other responses.

Have a great T-Day ALL!

So, if ACP passes, I'll be okay?

When you wrote that the plan is SH, do you mean that it satisfies the 401(k) safe harbor rules or that it satisfies both the 401(k) and the 401(m) safe harbor rules?  It makes a difference here.  The rule that no HCE can't have a better match rate available to him/her than a comparable NHCE will only apply to a 401(m) safe harbor plan.  See Treas. Reg. Section 1.401(m)-3d)(4) and note that 1.401(k)-3(c)(4) doesn't apply when the safe harbor contribution is the 3% nonelective contribution, not the matching contributions.

It's the 3% non-elective SH.

My document provider says it's okay, but will probably be subject to the ACP test.  The TPA tells me they will pass ACP as they plan on capping the match at like $1,800, so the HCE ACP will be low.

20 hours ago, BG5150 said:

Plan has 3% SH and a discretionary match.

Can they exclude "junior executives" from the match?  Most of these will probably be NHCE.  Coverage is not an issue.

Yes, they can exclude the junior executives from the match provided they pass coverage.  (You indicated that this was not an issue)

Being that the match is not available to all NHCE eligible employees, the match is subject to the ACP test.  Having allocation conditions like last day and 1000 hours would also require the ACP test.

If the plan document claims that the plan satisfies the 401(m) safe harbor rules and the match is not available to all NHCEs eligible to make elective deferrals, then you have a disqualification problem.  You can't choose to perform the ACP test on the fly.

If the plan document doesn't claim that the 401(m) safe harbor rules are satisfied, then you have to perform the ACP test.  Since you said the test will pass (also that coverage testing for the 401(m) portion isn't a problem), then you're home free.

I will make sure the plan is not drafted with ACP SH language.