SH match when none paid

We have more than one small plan with SH match where only the owners defer and so only the owners get SH Match.  They assure us that HCEs have been given the opportunity to defer.  While technically okay, what position are other TPAs taking?

Also, for one of these clients, they have a DB, PS and 401(k); of about 8 participants only the 2 owners (H&W) defer.  The 401(k) excludes HCEs from SH Match, so effectively this allows only the owners to defer with no ADP testing whatsoever.  Again, technically acceptable but.....  Thoughts?

Any adverse experience with IRS running plans this way?

No problem with any of it.  We repeatedly advise our clients to make sure that they have deferral elections on file.  If they don't, well, yeah, then you could have a troublesome situation in the event of an audit (or complaint - we've certainly seen situations like that brought up on the board by participants who had no idea there was a plan, let alone that it had SH match available).

8 hours ago, Bird said:

No problem with any of it. 

Communication is important.  One hopes that the ER has documentation of all communication to EEs.  

Cynchbeast, does your second sentence need to be edited?

David - are you questioning the veracity of our clients when I say they "assure" us they have negative elections?  Why would a sponsor ever lie ?  [a bit of sarcasm]

1 hour ago, Cynchbeast said:

David - are you questioning the veracity of our clients when I say they "assure" us they have negative elections?  Why would a sponsor ever lie ?  [a bit of sarcasm]

Re-read your second sentence carefully....

19 minutes ago, BG5150 said:

Re-read your second sentence carefully....

BG, are you meaning second paragraph? Because Cynch says HCEs are excluded from match but owners are getting a match.

2 hours ago, Bill Presson said:

BG, are you meaning second paragraph? Because Cynch says HCEs are excluded from match but owners are getting a match.

No, the second sentence states HCEs but the context implies NHCEs.  I'm asking for clarity.

And, I don't care about "client veracity".  A statement of "opportunity to defer" is NOT the same as "negative elections".

On 3/30/2020 at 5:59 PM, Cynchbeast said:

They assure us that HCEs have been given the opportunity to defer. 

I think he meant "NHCEs" that's all.

Ah, Mr. Rigby beat me to it...

Sorry for my typo, and any lack of clarity.

Owners are excluded from SH match, and so get none.  Owners are the only HCEs.   Owners tell us that all NHCEs have been presented with 401(k) & SH Match and have elected not to defer.  They say they have that in writing (do we ever believe everything the client tells us?)

I feel this is very suspect, and I know that technically it works.  But I was wondering if anyone has had experience with the IRS questionning such a case.

The IRS would have issue with only the HCE deferring.  However, election forms by the NHCE showing the request to not make deferrals solves that issue.

If they say they have it in writing, it's not on you.