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Hello! We have a client that started their plan in 2022 and failed ADP and TH testing due to their owner maxing out their contribution. Their TH Funding was going to be almost $30k and they demanded a reversal of all the owner's contributions in 2022 which were processed recently after many conversations on why this was a bad idea and having them approve a hold harmless letter. Several questions about this: 1 - Does the reversal change the TH test? The balance as of 12/31/22 hasn't changed, and I know first-year plans can use accrual, but I have only ever used that when adding employer contributions to the total. Was not sure how this should/could be handled since I have never had a client actually go through with a request like this. 2 - Similarly, the Form 5500 will reflect the amounts that were in there on 12/31/22 since this is done on a cash basis. So do their quarterly statements. Should any of this be updated or should it all be left as-is? It's just a glaring issue in an audit and I am fine with that as the client signed off understanding they need to own everything that comes with the request. 3 - The reversal that was processed was for exactly $20,500 and all earnings/dividends remained in the plan. Thoughts on how this should be handled? Their letter of direction stated the exact amount versus making it all look like it never happened but, again, such an obvious issue if looked into. Thanks!

Facts: Plan is top-heavy; Has a 3% non-elective safe harbor contribution; Has a stated match of $0.25 for each dollar deferred up to 4% of pay for Non-HCE only – has last day/1000 hour requirement; Has a discretionary profit sharing plan, but has decided NOT to make a profit sharing contribution for 2020. I know if they make a profit sharing contribution (which they always have in the past) that they would need to satisfy top-heavy minimums, but in 2020 they are not going to make a profit sharing contribution. My question is if for 2020, do they have to satisfy the top-heavy minimums? I know that adding allocation req's to a match makes nondiscrimination more difficult to pass, but does the fact that the match is for non-HCE only help? Any insight you can provide would be much appreciated! Thanks!

Have a Safe Harbor 401k plan that allocates a Safe Harbor enhanced match formula (100% up to 4% deferred). They also allocate a non-elective profit sharing contribution based on integration/permitted disparity and the plan falls into the Top Heavy threshold. The plan has a 1000 hours of service and last day requirement for receiving an allocation of the additional profit sharing contribution. EX-Have a participant who is NOT eligible for the allocation of the profit sharing due to the service, but is receiving the Safe Harbor Match because they deferred. Would this participant also have to receive a Top Heavy minimum allocation or would their Safe Harbor Match satisfy that requirement?

A very small SH 401(k) plan has five eligible participants. Two are deferring, one HCE and one NHCE. Two other HCEs are not deferring, and one (now deceased) NHCE did not defer. In 2018 the plan sponsor made the SH match every pay period (by choice - not required). The NHCE who was deferring received a few dollars too much match as of the end of the year. The extra amount equals 0.07% of the NHCE's annual compensation. So there is what amounts to a miniscule profit sharing contribution made to one NHCE which causes the plan not to meet the exemption to the top heavy rules. What are the options for addressing this? Thanks!