Jump to content
PFranckowiak

Top Heavy Safe Harbor Match

Recommended Posts

Do I have these options correct - have not done this in awhile.   Not sure if we will ever get any relief legislation in time to make any difference. 

Stop Match

      30 day notice, amend plan, subject to ADP/ACP, Fund to date of amendment, SUBJECT TO MINIMUM TOP HEAVY CONTRIBUTONS.  these may be more than the match requirement.

Terminate the Plan

     Stop Match as of date of plan determination, not subject to additional testing.

Share this post


Link to post
Share on other sites

The only way to avoid the THM (i.e., the only way to preserve the safe harbor status and top heavy exemption)  currently is to terminate the plan, but that only works if it is a substantial business hardship.  From the EOB the hardship rule is defined as follows:

2.c.2)a) Definition of business hardship. IRC §412(c)(2) lists the following factors as relevant to a determination of business hardship: (1) the employer is operating at an economic loss, (2) there is substantial unemployment or underemployment in the trade or business and in the industry concerned, and (3) the sales and profits of the industry concerned are depressed or declining.

I spent an hour and a half reading up on these rules this morning.  I advise everyone to read the section of the EOB that goes over this.

  • Like 1

Share this post


Link to post
Share on other sites

Thanks. I'm betting we'll all be very familiar with these rules in the next few months.

 

WCP

Share this post


Link to post
Share on other sites

Austin - I agree, but I'd just like to mention that the parameters allow a bit more flexibility than that - I'm nitpicking, but I sent a memo to folks yesterday that included the following excerpt:

Getting deep into the regulatory weeds, there is one possible “out” in this situation. If the plan is TERMINATED due to a “substantial business hardship” that is  “comparable to a substantial business hardship described in section 412(c)" and the only contributions made to the plan up through the termination date were deferrals and safe harbor contributions, then the top heavy exemption IS still preserved for the short plan year. The parameters for determining “substantial business hardship” are found in IRC 412(c)(2) – see the following - emphasis is mine.

 

(2)Determination of business hardship For purposes of this subsection, the factors taken into account in determining temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan) shall include (but shall not be limited to whether or not—

(A) the employer is operating at an economic loss,

(B) there is substantial unemployment or underemployment in the trade or business and in the industry concerned,

(C) the sales and profits of the industry concerned are depressed or declining, and

(D) it is reasonable to expect that the plan will be continued only if the waiver is granted.

Share this post


Link to post
Share on other sites

That's not nitpicking at all.  Thanks for the clarification! 

 

"It is reasonable to expect that the plan will be continued only if the waiver is granted."

What is this last one all about?  I'm confused because the definition applies in the context of a plan termination?  It was not included in the EOB.   Maybe you included the full language that I think really applies to a DB minimum funding waiver?

Share this post


Link to post
Share on other sites

Agreed. I just copied the whole 412(c) section so everyone could see it, but now that you mention it, I can see where this would be confusing!

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...