Inclusion/exclusion of HCEs in safe harbor K plan

Is it permissable to exclude HCEs from the Employer nonelective or match in a safe harbor plan, but allow them to defer?

Is is permissable to exclude one of several HCEs by name or classification?

A problem can arise with young HCEs in a cross tested plan, which raises these questions. Opinions?

Yes, it is permissable to exclude HCEs from the safe harbor contributions but still allow them to make elective deferrals.

Yes, you may exclude HCEs by name or by classification as long as it's done in the plan document in a way that doesn't give the discretion to the employer. If you exclude by name, then the plan must pass coverage testing using the ratio percentage test.

On your last point, you could think about fail-safe contribution language to allow a partial allocation to the young HCEs. You have to define in advance exactly how you're going to do the testing / allocation plus others report that it makes getting a determination letter a challenge, so fail-safe contribution language isn't always a popular option. From your posting, it's unclear why you'd have to perform cross-testing, but I'll assume there's some other things going on within your plan that makes cross-testing necessary.

Thank you for the reply.

Could you clarify your statement that the plan must pass coverage by the ratio percentage test if someone is excluded by name. Why? Are you saying that average benefits is then not an option?

Yes, I was referring to a situation with cross tested discretionary allocations combined with the nonelective safe harbor.

The reason why a plan that excludes individuals by name must pass using the ratio percentage test is because it won't pass the average benefit test.

The average benefit test consists of two portions, the nondiscriminatory classification test and the average benefit percentage test. The nondiscriminatory classification test also consists of two portions, an objective arithmetic test and a subjective component. The subjective component is passed only if "the classification is reasonable and is established under objective business criteria that identify the category of employees who benefit under the plan.... An enumeration of employees by name ... is not considered a reasonable classification." Treas. Reg. 1.410(B)-4(B).