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Was a 5500 filed for 2019?

I disagree. 416 is clear that in order to be top-heavy the percent requirement is that the keys have a benefit which is more than 60%. Words have meaning. Having sat with government representatives discussing the implications of adopting a plan which is then not funded for the first year (is there a 5500 requirement? successor plan rules? amongst other things) and heard them universally say that yes, Virginia, there is a 5500 requirement, etc. I think the adoption of the plan effective in 2019 means that the 2020 year is definitely not top heavy.

So if you are not TH for 2020 and you are a safe harbor for 2021, I'm not sure I see an issue as you should be deemed not TH for 2021 if the safe harbor match is the only employer contribution.

Hi, 2020 was not the first year for the plan. The first year was 2019 and no one contributed anything to the plan. In 2020, the 2 owners started contributing along with 1 or 2 other employees. There was no match for 2020. The owners only put in about 1.5% of pay. Last Fall, they decided to become a safe harbor plan for 2021. As to why it was set up like this? I work for a payroll company. The salespeople don't ask what's in the best interest of the client as to the plan set up. They are just trying to meet their quotas. It comes across my desk at year-end to do the compliance testing and this is the result. Their payroll for 2020 was over $2M. With that 3 month eligibility, most are eligible for the plan so that TH contribution will be significant. I was just desperately looking for some way around it because I am the one that has to deliver tis news.

I don't know if this will help, but see Einhorn v. McCafferty, No. 5:14-cv-06924, United States District Court, E.D. Pennsylvania (March 31, 2016) that you can find at https://scholar.google.com/scholar_case?case=8170636359019689152&q=Einhorn+v.+McCafferty,&hl=en&lr=lang_en&as_sdt=20000006&as_vis=1 In this case the District Court discusses the difference between shared and separate interest allocation of a defined benefit plan, the age 50 rule and the “severed rule.” The Court explained: “Here, as in Files, the language of the settlement agreement reveals that Kevin intended to afford Deborah a separate interest in fifty percent of his pension, rather than a mere interest in sharing a portion of any benefit payments that he later received. This is a critical difference, because under the shared payment approach, the former spouse receives nothing if the participant does not receive any payments (there would be no payments to split). Kevin died before he began receiving retirement benefits, which means that if Deborah had been given only a shared payment interest, she would not have been entitled to any benefits. But under the separate interest approach, "because the spouses' benefits are independent, neither spouse's benefits stop upon the death of the other." See 2 Brett R. Turner, Equitable Distribution of Property § 6.34 (3d ed.), Westlaw (database updated Nov. 2015) (emphasis omitted). “However, there may be a problem for Deborah. At the time of Kevin's death, he had not yet reached the minimum age to be eligible to start receiving benefits from the Plan. While a person who is afforded a separate interest in someone else's pension plan is treated like a plan participant in his or her own right, that person nonetheless "cannot . . . receive a benefit earlier than the date on which the participant reaches his or her `earliest retirement age,' unless the plan permits payments at an earlier date." QDROs, supra, at 40. Under the terms of some pension plans, this means that if the participant dies before reaching the minimum retirement age, any person who holds a separate interest in the participant's plan loses that interest. See Raymond S. Dietrich, Qualified Domestic Relations Orders § 10.04[1], Lexis (2015). “Other pension plans are different. They apply the so-called totally severed approach, which means that when a participant gives another person a separate interest in his or her pension plan, the plan completely separates the two interests, leaving the participant and the beneficiary as two autonomous plan participants. Under these plans, ‘an alternate payee [can] begin receiving her entitlement when the plan participant reaches retirement age, whether the participant actually retires or continues working. If the plan participant dies before retirement, the alternate payee may begin receiving benefits when the participant would have reached retirement age; the participant's death, whether it occurs before or after the participant reaches retirement age, therefore does not affect the alternate payee's entitlement.’ “Krushensky v. Farinas, 189 P.3d 1056, 1062 (Alaska 2008) (citing David Clayton Carrad, The Complete QDRO Handbook 70 (2d ed. 2004)); see Dietrich, supra, § 10.04[1]. This approach fully protects a former spouse who holds a separate interest in a pension against the risk of the participant dying before reaching the minimum retirement age.” You can find Krushensky at https://scholar.google.com/scholar_case?case=12011889634268315346&q="severed"+"separate+interest"+"defined+benefit"&hl=en&lr=lang_en&as_sdt=20000006&as_vis=1. These are the only two cases I have found in the US discussing the concept of "totally severed" as it applies to QDROs or divorce or "separate interest" or "defined benefit" or subsidy or subsidized. So I suspect the answer to your questions will be found in the language of the QDRO itself, or in State law, or in the Plan documents. I think your Plan Administrator needs something to hang his/her hat on other then his own preference. I don't think the age 50 rule prevented the early retirement subsidy from kicking in. I don't think IRC 417(c) changes that outcome. The benefit never came into existence.

I'd speak to the manager. There might be a systemic failure of not producing 1099's for most if not all their clients...

Is the 3 months of service eligibility for deferrals only or for deferrals and safe harbor match? If it's 1 year of service for the match, and you have any employees who can defer but are not eligible for the safe harbor match then you lose the top heavy exemption.

What if 2020 is the first year. That will be TH, too. Does the 2021 SHM do double duty for the '20 and '21 minimums?

In the 1990s, another lawyer and I worked on a plan for a company with several national restaurant chains. The IRS reviewer would not approve anything that would allow an employee to make a cash-or-deferred election on the portion of her wages from cash tips. But an employee might consider a wage reduction that’s a big percentage (perhaps up to 100%) of her net wages, after tax withholding, paid by the employer rather than collected as cash tips. But sometimes that net wage after tax withholding is $0.00. The practical challenges vary with the restaurant. If many customers use only payment cards and no currency, the employer might control those payments. But if many pay tips in currency, more is beyond the employer’s control. I don’t know whether the tax law, or the IRS’s views, have changed since I worked on this issue. And here’s a BenefitsLink discussion: