What do you do when you have a situation where the owners are younger than the NHCE’s? Here’s an extreme case where the husband is 53, his wife is 45, and the only other participant is 56:
The only way to pass under New Comparability is to give the 56 year old $9,669 in contribution, which is 32% of compensation.
Consider the Triple-Stacked Match approach. Assuming that the NHCE defers 2% or $600, the Triple-Stacked approach is a 401(k) only approach with no Profit Sharing.
The first match is a regular Safe Harbor match of 100% of the first 3% of pay plus 50% of the next 2% of pay (a maximum of 4% of pay). The second match is a discretionary match of 66.67% (2/3) of deferral up to 4% of considered earnings. The third match is a fixed match of 100% of pay up to a maximum of 5.1373%. The maximum in the third match happens to be the percentage that will maximize the owner. Note that because of the limit of 4% on the discretionary match and the less than 6% on the fixed match, our plan satisfies the Safe Harbor rules. The fixed and the discretionary match may be subject to vesting. However, this plan cannot impose hours or last day requirements.
Notice that in this illustration, the cost of the NHCE is only $1,600.
But what if the NHCE decides to take advantage of the match and makes a deferral of 6%? The NHCE cost jumps to $3,941. This, however, is still only 11.6% as opposed to the 32% New Comparability cost.
Despite involving some risk, the Triple-Stacked Match approach provides a cheaper alternative with the potentiality of significant employer savings.