Lou S.

I'm assuming you've always used prior year testing. If that is the case why don't you use option 3. Re run the ADP/ACP test for 2006 with deferral in ADP and qualified match in 2006 in ACP and use those only as your prior percentages for 2007. I'm not sure there is regulatory athourity for this though.

Check your document as to when participants enter the plan, but it sounds like full year comp is correct for the PS. We do this quite often for new plans.

Not sure if it is correct but any time an HCE took a taxable distribution (unless it was a required 401(a)(9) minimum) we reclassify part of the distribution as the refund and isses amended 1099-Rs. That way he/she escapes the 10% penalty if they are under 59 1/2.

Thanks. I've done a bit more digging since my initial post and I'm still a bit confused. Maybe I didn't state the conditions properly. In looking at Rev-Rul 2004-13, IRC 416(g)(4)(H) and IRC 401(k)(12) it would appear that if you have a safe-harbor 401(k) plan that gives the safe-harbor contribution to all NHCEs (no NHCE exclusions), but does not give the S-H to any HCE, and that is your only employer contribution for the year, then your plan is deemed "not top-heavy" under IRC 416(g)(4)(H) for that year and you do not have to give the "top up" T-H minimum to the non-key HCEs who are ineligible for the S-H contribuion becuase your plan statifies all requirements of IRC 401(k)(12)©. Assume all notices proper and timely. Am I reading the code wrong, or is it just wishful thinking on my part trying to save the client from making an addition contribution that they don't want to make?

If a safe harbor 401(k) plan that makes the 3% safe-harbor nonelective contribution for all NHCEs (HCE excluded) is also top-heavy, does the plan satisfy the T-H contribution requirement if they have non-key HCEs who are not receiving the 3% S-H contrib? They do not want to make any additional er contrib besides the 3% to all NHCEs.