Use Plan Design to Maximize Executive Contributions

Government nondiscrimination rules limit high compensation employee (HCE) contributions and subject them to testing. A failed test requires HR to determine refund amounts and impacted HCEs so the plan can keep operating. Worse yet, refunds can raise HCE tax bills—and untimely refunds can trigger penalties.

The great news is that good, thoughtful plan design can eliminate year-end surprises and increase control. There are many strategies that can help. Here are a few:

  • Employ auto enroll/auto escalate tools and improve education to boost plan deferrals so that HCEs can contribute more

  • Adopt a Safe Harbor plan design to eliminate nondiscrimination testing

  • Cross-test plan design to achieve HCE contributions in excess of $50,000

  • Add a cash-balance plan to allow key executives to contribute more—sometimes in excess of $100k per year

Review plan designs from time to time and understand the many options available. Smart, informed design can eliminate unnecessary frustration.

Allen Woodard