Limiting Compensation for HCEs in 401(k) Safe Harbor Plans (Posted October 8, 2003) Technical Tip 106: The following question and answer were from the IRS Q&A Session at the 2002 ASPPA Annual Conference: Can a safe harbor match 401(k) plan limit the compensation only for HCE salespersons? Response: Yes. Comment by the RLR&C ERISA Attorneys: A plan is deemed to satisfy the ADP and ACP tests if it satisfies the safe harbor requirements under Code section 401(k)(12). The safe harbor can be satisfied using either a matching or nonelective contribution. Notice 98-52 provides that the compensation used for purposes of the safe harbor must satisfy the requirements of 414(s). The notice provides that the plan may not exclude compensation in excess of a specified dollar limit for non-highly compensated employees. It does not restrict the plan from limiting the compensation of highly compensated employees (HCEs). Thus, as indicated by the IRS above, a safe harbor plan may limit the compensation used for certain HCEs. View all Tips © 2008 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.