safe harbor 401k, top heavy, IRS opinion

[Tom Poje]

At the ASPA conference, the IRS voiced the following opinion. This is an opinion only, of course, and does not reflect any official position, nor has it been reviwed or approved by the Service or Treasury.

but at least it is something to go by...

Q. A plan has the following possible contribution types:

401k, 401m and discretionary profit sharing.

No discretuionary profit sharing will be made in the future.

Can the matching safe harbor contribution satisfy top-heavy...?

A. Yes, however, if no profit sharing contribution is made such that the only current contributions are elcetive deferrals and safe harbor match, then the plan is not top heavy.

This one was actually asked twice under the Q and A (21 and 33) and though posed slightly differently in the two questions, the answer was still the same.

[R. Butler]

Do you know approximately how long it will be before ASPA posts the Q&A's on their website?

Were there any Q&A's about reallocated forfeitures and how that effects top heavy?

[Tom Poje]

not sure when ASPA will post the Q and As.

we left Tues night and did not stay for the final wrap up session, which is today (Wednesday)

the original question was that no forfeitures or contributions were allocated. there was no discussion as to 'what if only forfeitures were allocated', except purhaps to have forfeitures reduces contributions (or pay expenses)

[austin3515]

I thought that safe harbor plans were now exempt from top heavy rules?

[Tom Poje]

You read too many articles early on. Everyone was jumping on this bandwagon that safe harbor plans were deemed not to be top-heavy. I recall reading many of them and thinking that it was great. then I read the actual Bill (I don't recall where I got it from somewhere on Benefits Link at one time)

anyway, there is a key phrase that was missed by a lot of people. It involved the word 'solely'. basically, the plan is not top heavy if it consists soley of deferrals and safe harbor contributions. so now everyone was concerned about does that mean 'in a given year' or does that mean ' those are the only options possible'

[R. Butler]

They are exempt if they consist "solely" of deferrals and safe harbor contributions (See EGTRRA §613(d)).

The issue to which Tom Poje refers is whether or not a Safe Harbor Plan is exempt from top heavy requirements if the document merely allows for a discretionary profit sharing contribtuion (even if a contribution is not made). Concerns have also been expressed about reallocated forfeitures.

There are several threads on these issues if you want to research it further.

[2muchstress]

Tom,

In the first post, you said that the IRS opined that

"A. Yes, however, if no profit sharing contribution is made such that the only current contributions are elcetive deferrals and safe harbor match, then the plan is not top heavy."

Would you rely on this answer by the IRS for use in your practice?

Also, I have a safe harbor 401(k) plan for a small start up company that allows for discretionary profit sharing. They will definately not fund anything for at least a few years but as the company becomes more profitable, they hope to fund in the future.

Can I, or would you, rely on that statement to mean the plan will not be top-heavy until they actually fund a discretionary profit sharing contribution?

Thanks.

[Tom Poje]

at this time, yes, I would hold that if there are no forfeitures/profit sharing allocated to people in a given year, then the plan is deemed to be not top heavy.

I believe the IRS indicated they would issue a tecnical memo or something on this issue

[2muchstress]

Thanks! That was the answer I was hoping for.

[KJohnson]

Tom,

Who was speaking for the IRS, Wickersham?

[Tom Poje]

and Holland - the usual pair at ASPA