3% NonElective Safe Harbor Allocated with Each Payroll

I am curious to see what opinions there are on the following scenario.

A 401(k) plan uses a 3% non-elective safe harbor, that is limited to non-Highly Compensated Employees.

The employer wants to allocate the safe harbor with each payroll.  They realize it goes to everyone, and is not a match.

They may, and likely will, also make a profit sharing contribution, allocated at year end.

Does anyone see a problem with the the NHCEs receiving their 3% throughout the year, and the HCE receiving their profit sharing at a different time?

Worst case scenario (I think), the 3% SH is allocated all year in a terrible market year, and at the end of the year the 3% SH that was allocated is now something less then 3%.

The year ends and the when the market is at it's lowest the Owners (only HCEs) decide to make a 3% profit sharing contribution for themselves, or maybe even 9% if it passes testing.

I like the idea of not having the HCEs receive the non-elective safe harbor, but I'm not sure I'm comfortable with the different allocation timing.  

Thanks for any opinions.

I don’t see a problem with this. 

No problem at all.  They are two completely different contribution types.

Just be cognizant that the safe harbor MUST be trued up at EOY.

On ‎10‎/‎31‎/‎2020 at 5:38 PM, Gilmore said:

Worst case scenario (I think), the 3% SH is allocated all year in a terrible market year, and at the end of the year the 3% SH that was allocated is now something less then 3%.

Good luck does not fall under the definition of a right or feature under 1.401(a)(4)-4(e)(3).

So Luke, you would be leery of this type of set up?

Gilmore, no. It seems better for the NHCEs, probably always, certainly in the long run. I have seen others criticize this sort of set-up for contributing everything at once for the year for the HCEs, because it makes it harder for them to dollar cost average the investment of their contributions. That is a fiduciary concern, however, not IRS nondiscrimination issue.

There are a lot of things to be concerned about in plan operations.  This is not one of them.  Seriously, it's fine.