Top Heavy testing for a safe harbor 401-k

[KevinMc]

A small firm (about 30 employees) has a safe harbor plan where the 3% nonelective safe harbor contribution is made.  My understanding is the top heavy testing is deemed to pass for a safe harbor plan but what if the firm elects to make additional profit sharing contributions?  Under what circumstances, if any, would top heavy testing need to be done and how would the profit sharing contribution need to be allocated to avoid makin the plan top heavy (which it would be)?  Thanks for help.

[401_noob]

The Safe Harbor Plan only gets the Top Heavy pass if only deferrals and the safe harbor contribution are the only sources contributed to the Plan. If anything else is allocated, discretionary ER, then Top Heavy will apply and the minimum allocation will be required.

So, to answer your question, TH testing will be required and if the discretionary ER & SH NE contribution isn't allocated in a way that satisfies the minimum allocation requirement, then additional contributions will be needed.

[Mr Bagwell]

Let's break this up a little bit.....

If the plan ONLY makes deferrals and safe harbor contributions for the year, the plan is not subjected to the top heavy determination from the prior year end.  Or to say another way, the plan may be top heavy, but with only deferrals and safe harbor contributions for the year, no top heavy contribution is required.

If the plan would like to do profit sharing, the safe harbor status does not get them out of the top heavy rules.  However, you would think the safe harbor 3% is going to cover the top heavy requirement.  Just need to make sure non-keys are getting 3%.

Sounds like the plan is teetering between being top heavy and not being top heavy.  If that is the case, your profit sharing plan design is key to helping the plan become non top heavy.  There is a good thread not that old that goes through the logic and design to spread the profit sharing love to help the plan teeter to the non top heavy side.  However, that is going to require a little more money to non-keys.... owner may not like that scenario....

[BG5150]

Something to keep in mind:  SH can be allocated on comp while a participant, so first year entrants may only get 3% of partial year pay.  If there is a TH minimum due, they must get 3% of full year pay.

Another thing, it's not only PS that blows it up.  Discretionary match that is not ACP SH complaint or even reallocation of forfeitures will drop the SH protection of TH.