Leaderboard

Perhaps this will help. https://www.irs.gov/pub/irs-drop/rr-02-45.pdf

Correct. Correct. Note, however that the dollar limit will exceed the comp limit somewhere between 67 and 68. Thereafter the comp limit will control.

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.

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.

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.

Being picky here: If the SH Match is the ONLY employer contribution in 2021, then the plan is not considered top heavy for 2021 regardless of the balances of key employees.

I suspect that the IRS would object to the following scenario: adopt a plan on 7/1/2021 effective 1/1/2020 which is specifically allowed per the new law. Don't fund anything for 2020 and, magically, what would otherwise be a new plan for 2021 that is top-heavy in that first year (2021) is not top-heavy for 2021 at the cost of a 5500 with a whole bunch of zeroes. Sounds abusive to me, but it sure does seem to "work".

Once again you are right as usual Mike and a credit to this board. Thanks. After going back and looking at the code I agree that $0 is not more than 60% of $0 which is how the statute is actual worded. I feel today has been a success learning something new that previously took for granted.