C. B. Zeller

Not sure what you mean by "beneficiary accounts" - are you saying B and C were A's beneficiaries, and they rolled over their distributions into the same plan? If that's the case, then in my opinion you would treat it as unrelated rollover for purposes of the top heavy determination, although some people have other thoughts on this. See this thread from a few months ago.

1. No. The $1,000 was withheld from pay per the employees' elections, it is a plan contribution. 2. n/a 3. Yes. It is treated as a loan from the plan to the employer. 4. Deposit the late contributions with lost earnings, pay the excise tax on the prohibited transaction, and optionally file VFCP. See https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-you-have-not-timely-deposited-employee-elective-deferrals

What does your document say? This is what mine says under top heavy minimum benefit: So you would have to pay out the AE of the TH minimum, regardless of their hypothetical balance. No amendment needed.

As long as the same definition of compensation is used to calculate the 2019 NHCE ACP and the 2020 HCE ACP, then I agree.

This sounds right to me. It sounds like you are already aware of this when you said "restrictions would apply," but I'll point out that the deemed reduction only applies if the plan offers a form of benefit which would be subject to the restriction on accelerated benefit payments, such as lump sum. The deemed reduction in the prefunding balance would occur on the day that the actuary certifies the AFTAP.

It would be helpful if you could throw out some numbers - how many HCE and NHCE in each company? Which tests are having issues - coverage? ADP/ACP? Are you permissively aggregating the plans for testing? Are there any class exclusions?

Thanks for all of the feedback. I do appreciate it. This is really the part I have a problem with: The safe harbor nonelective contributions are clearly not part of (2). Under a CODA, as defined in 401(k)(2), contributions are made pursuant to the employee's election to have the contribution made in lieu of cash. If a participant does not make such an election, they nonetheless receive the safe harbor nonelective contribution, therefore the safe harbor nonelective contributions are not part of a CODA, therefore they are not part of (1) either. Therefore the plan consists of contributions other than those specified in (1) or (2), therefore 416(g)(4)(H) does not apply. I think this is as good as I'm going to get - the 3% nonelective contribution is "described in" 401(k)(12)(C) and therefore it meets the requirements of 416(g)(4)(H). Chalk this one up to poorly written laws and lack of regulatory guidance, I suppose. Thanks again for all of the input.

I seem to be in the overwhelming minority on this so I'll concede that I am wrong. Apologies for any incorrect info I may have given. That said, it would certainly make me feel better if anyone has a direct cite that says so. The EOB references Rev. Rul. 2004-13 but I don't see how that answers the question, its examples only deal with a safe harbor match. Does a safe harbor non-elective plan consist solely of a cash or deferred arrangement? No, of course not, it is a CODA plus a 3% nonelective contribution. Therefore I fail to see how such a plan meets the definition of "a plan which consists solely of a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13)" as stated in the statute. The nonelective contribution is required by 401(k)(12)(C) but it is not itself part of the CODA. Again, I realize my reasoning must be faulty. If anyone could point out what I'm missing I would appreciate it.

I am honestly surprised to hear this as it does not seem to agree with a straightforward reading of the statute.

Right, my point was that 416 only provides that a plan which consists solely of a CODA that satisfies the 401(k) safe harbor and a match that satisfies the 401(m) safe harbor is considered not top heavy. If you satisfy 401(k)(12) by way of the nonelective contribution then your plan does not consist solely of a CODA and match, and therefore the deemed exemption from top heavy does not apply.

Unfortunately I do not think you can do it your way. 416(g)(4)(H) says that a plan which consists of solely a cash or deferred arrangement and matching contributions that satisfy the safe harbors of 401(k)(12)/(13) and 401(m)(11)/(12) gets a pass on being top heavy. Once you have any nonelective contributions in your plan this provision no longer applies and you are subject to the normal top heavy rules.

Yes, you can test a DB plan on a contribution rate basis by using the present value of the increase in the accrued benefit. This however you can't do. Your actuary is correct. A CB pay credit is a hypothetical allocation.

If the initial plan year were a short plan year from 1/1/17 - 11/30/17 then I think the rule under 1.404(a)-14(c)(1) would allow both deductions to be taken for calendar tax year 2017. I agree it's fishy though. You can get a plenty big deduction from a well-designed plan without resorting to these kinds of tricks.

All participants should receive the SPD, and the SPD contains a description of the provision for restoration of forfeitures after re-employment, so yes, they are provided a formal notice.

As long as the match that was earned under the traditional safe harbor is preserved at 100% vesting, I think it is ok.

It should be fine - you can amend the vesting schedule with respect to benefits that accrue after the amendment date. That said, would anyone even be affected by this? Assuming the plan requires 1 year of service for eligibility, then someone hired in 2018 would enter the plan in 2019 while the traditional SH match is in effect and be fully vested. Then in 2020 it would change to the QACA but they will already have 2 years of service, so they would be fully vested regardless. Someone hired in 2019 would enter the plan in 2020 under the QACA and be subject to the 2-year vesting from the start. Obviously the calculation changes if you use more lenient entry than 1 year of service.

Thanks, I appreciate the input.

You subtract out the deferrals before applying the 401(a)(17) limit.

When a plan is top heavy, it is sometimes useful to amend the plan to set a $0 limit on elective deferrals for Key employees. This allows the Key employees to make contributions which will be automatically reclassified as catch-up contributions (provided they are eligible to make catch-up contributions) because they exceeded the plan-imposed limit of $0. Since catch-up contributions are disregarded for application of 416, this is a way to allow the Keys to contribute without triggering the top heavy minimum. I am wondering if there is a way to specify that the $0 limit automatically applies in years when the plan is top heavy, and only when the plan is top heavy. In our adoption agreement (FT William) there is a checkbox in the "Minimum and Maximum Deferral Amounts" section for "Other limitations on Elective Deferrals (specify): ________". I am thinking of putting in that blank something along the lines of, "If the Plan is Top Heavy for the Plan Year, the maximum Elective Deferral contribution for Key Employees shall be $0 for the Plan Year." Possibly also adding "The application of this limit shall not restrict the Key Employee's right to make Catch-up Contributions, if they would otherwise be eligible to make Catch-up Contributions" just to be clear. Any thoughts or opinions on this approach? Are there any issues with determining the plan limit based on the top heavy status? In theory, the plan administrator could know by the first day of the plan year whether or not the plan is top heavy for the current year, and so can adjust the keys' limits if needed. Would this kind of language jeopardize the plan's preapproved status?

2017-57 is about changes in method. You have a change in assumptions. See, for example, Section 3.02(c) Example 3 of the rev proc.

For what it's worth, the 414(m) proposed reg lists "performing arts" as a business that is automatically a service organization. I agree capital is probably not a material income-producing factor. She makes her income off of how many subscriptions she sells, which has nothing to do with the capital investment, for example, how many ingredients she had to purchase to make a given video. Her customers are paying for her, not the thing she produces, and to my mind that is the main difference between a service organization and not. You can argue that she produces videos and sells them, so she's selling a product and not a service, but that's like saying your accountant is selling tax returns.

Is capital a material income-producing factor?

is the HCE who is deferring Key? If not then there is no problem. Otherwise there are a few options I can think of: 1. Forfeit the excess contribution. The participant was not entitled to it under the plan's formula so it can not stay in their account. Could possibly be returned to the sponsor as a mistake of fact, depending on the circumstances. 2. True up the match on an annual basis (if this will help). 3. Make an additional discretionary ACP safe harbor match, if allowed by the plan document. 4. Make the necessary top heavy minimum contribution to the non-Keys.

The definition of "Plan" in 1.401(a)(4)-12: Plan means a plan within the meaning of §1.410(b)-7 (a) and (b), after application of the mandatory disaggregation rules of §1.410(b)-7(c) and the permissive aggregation rules of §1.410(b)-7(d). Once you have permissively aggregated the two plans for testing, they become a single "plan" with a single latest normal retirement age.

If I'm understanding you correctly, the new formula grants an additional 2% of average comp per year of service up to 5 years as long as those years were completed prior to 1/1/2019. Since the formula is treated as being in effect for all plan years, for this purpose the extra 2% per year would be treated as accruing in the employee's first 5 years prior to 2019 - not in the current year.