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Top Heavy and Safe Harbor


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So BG5150, are you saying that because even though they are Top Heavy for 2021, no TH contribution is owed for 2021? What about the people that won't contribute in 2021. They won't be due anything?

This is what I'm trying to verify. The fact that they are TH for 2021 but became a SH plan for 2021 so the TH minimums won't apply.

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(H) Cash or deferred arrangements using alternative methods of meeting nondiscrimination requirements

The term “top-heavy planshall not include a plan which consists solely of

a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13), and [ADP Safe Harbor contribs and QACA contribs]
matching contributions with respect to which the requirements of section 401(m)(11) or 401(m)(12) are met. [ACP Safe Harbor and QACA]

The above is from Sec 416. (the bold items are my emphasis and commentary)

Basically is says that if Safe Harbor is the SOLE funding method (other than deferrals), then the plan is NOT TOP HEAVY.  If the plan is not Top Heavy, then, of course, no minimum is required.

So, in your case, if the SHM is the ONLY employer money (or, more specifically, the SHM and a discretionary match that together satisfy ACP Safe Harbor), then your plan is NOT TOP HEAVY, regardless of the key assets held.

Picky point:  Safe Harbor doesn't satisfy TH minimums (if the SH is the only ER contrib); the plan is simply not TH in that case.


Two wrongs don't make a right, but three rights make a left.

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That's music to my ears! Thank you all for your help and insights. I always thought that this was the case but the system that I was working on kept asking for the TH minimum on a plan that was similar to this. In 2019 that plan was not a SH and tested as TH for 2020. Plan amended to a SH match for 2020 but the system kept asking for a TH contribution. That's when I began to doubt myself.

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3 hours ago, coleboy said:

If everyone contributed to the plan for 2021 then I wouldn't have to worry but there's no way that it will happen. Once she's refunded the money from the correction of the ADP test, the plan would fall below the 60%. Is that distribution counted?

As others have mentioned if the SM match is the only employer contribution the plan is "deemed not top-heavy" regardless of the top-heavy ratio.

That said for the determination date of 12/31/2020 you include the full 401(k) amount (pre-refund).

The refund made in 2021 is an in-service distribution and will remain in your top-heavy test under the rules for in-service withdrawals and look backs from the determination date as detailed in 416. As long as you meet the "safe-harbor only" rules under §401(k)(12) & (13) you are deemed "not top heavy". Once you have $1 dollar of allocations outside those rules, you are back in the 416 top heavy world and need to comply with those rules.

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