An employer has three partners who are all highly compensated employees and one nonhighly compensated employee. Two partners do not wish to participate and the one who does, wants to make this a safe harbor 401(k) plan so that he can maximize deferrals. The one NHCE will defer to the plan. Can a plan design be fitted to these specifications?
Rev. 10/26/07, E-mail Alert 2007-14

Since partners may not make an irrevocable election, that option is out. However, the one partner who wishes to defer does not care if he receives a safe harbor NEC contribution or not.

A safe harbor 401(k) plan can be implemented with a 3% safe harbor NEC contribution. The HCEs may be excluded from the safe harbor contribution. Thus, the plan would be safe harbored from ADP testing. The two partners who did not wish to participate would be eligible to defer but would not have to. The NHCE would be able to defer and would receive the only 3% NEC safe harbor contribution. The one partner could defer to the 402(g) limit catch-up (as he is over age 50).