Must HCEs receive a safe harbor contribution?
Rev. 04/03/09, E-mail Alert 2009-05

No. For a plan to avoid ADP testing and perhaps also ACP testing, the safe harbor nonelective or matching contribution only needs to be provided to eligible nonhighly compensated employees.

Citations:
Final 401(k) regulations Section 1.401(k)-3(b): Safe harbor nonelective contribution requirement—(1) General rule. The safe harbor nonelective contribution requirement of this paragraph is satisfied if, under the terms of the plan, the employer is required to make a qualified nonelective contribution on behalf of each eligible NHCE equal to at least 3% of the employee’s safe harbor compensation.

Final 401(k) regulations Section 1.401(k)-3(c): Safe harbor matching contribution requirement—(1) In general. The safe harbor matching contribution requirement of this paragraph (c) is satisfied if, under the plan, qualified matching contributions are made on behalf of each eligible NHCE in an amount determined under the basic matching formula of section 401(k)(12)(B)(i)(I), as described in paragraph (c)(2) of this section, or under an enhanced matching formula of section 401(k)(12)(B)(i)(II), as described in paragraph (c)(3) of this section.

This answers a frequent call we receive. However, in addition to answering that call, we also discuss the requirement to incorporate the decision to exclude the HCEs into the plan document. Some callers were surprised at the need for a document amendment as they thought the exclusion was clearly permitted by the regulations and thus did not require a document provision. Further, the amendment to exclude HCEs must be made before the beginning of the plan year because once an eligible employee works for an hour after the beginning of the plan year, they are entitled to the safe harbor contribution. 
 

Bill Grossman, QPA