AJ North

Thank you for your response ESOP Guy. The plan does not have an employer stock option in the 401(k) plan, so that's not an issue. I will review and compare the withdrawal options and benefit forms to carry over. Plan sponsor is "forcing" diversification, so that will be another issue we will address with the client. Thanks again.

We have a client with an ESOP plan that indicates that if a participant chooses to diversify, the amount is transferred in cash to the 401(k) plan of same plan sponsor. The participant cannot elect to receive the diversified amount as cash to rollover elsewhere. Question: how should the 401(k) plan recordkeep for the transferred amount? My feeling is that this should be considered an elective plan transfer not a rollover. Do we need to worry about any cutbacks and mirror any optional forms of benefits and withdrawal provisions that may be more favorable in the ESOP?

Here’s a slight twist on the situation. What if you have a safe harbor plan that has been contributed a safe harbor basic match for the 2008 plan year satisfying ADP/ACP. No other contributions contributed for that year. Say for the 2009 plan year, the same safe harbor match is contributed; however, the employer decides to make a discretionary profit sharing contribution for the 2009 as well. Now the employer does the top heavy test and the plan is top heavy. For the 2010 plan year the employer contributes the same safe harbor match. I guess my problem here is that if the employer continues to make the safe harbor match, running the top heavy test is somewhat meaningless if it means that the top minimum does not have to be contributed to the non-keys in the next plan year. The only instance that it would make a difference is if the employer decided not to make a safe harbor contribution for the 2010 year. Thank you for responding.

I have a question concerning safe harbor and required top heavy contributions. A calendar year plan is determined to be top heavy on December 31, 2009 (plan has always been top heavy). The plan adopts a safe harbor basic match provision for January 1, 2010. All the key employees have received at least a 3% contribution from the employer in 2010. Does the plan administrator need to provide a top heavy minimum contribution (in other words be sure that all the non-keys employed on the last day of the plan year receive at least 3% from the employer) for the 2010 plan year? I know that if the plan was not determined to be top heavy at the end of the 2009 plan year, no top heavy contribution would be required, if the plan only has safe harbor contributions contributed in 2010, the plan is exempt from having to run the top heavy test. I know that a top heavy minimum can be satisfied by the safe harbor match. However, 5 non-keys did not make any 401(k) deferrals and therefore did not receive a match and 6 non-keys did not make enough 401(k) deferrals to receive at least a 3% match. I understand the coordination of a safe harbor provision and the possibility of not having to for performing a top heavy test for a plan year in which a plan made a safe harbor contribution and satisfied the ADP/ACP tests. However, the plan was found to be top heavy for the 2009 plan year when the plan did not have a safe harbor provision in place and therefore was subject to top heavy testing; a top heavy contribution would be due at the end of the subsequent plan year. I believe that for the 2010 a top heavy minimum is still owed to the non keys still employed on the last day of the 2010 plan year to the extent that they did not receive at least a 3% safe harbor match. I hope this makes some sense.