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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!

I have a client who has dropped down to 57 1/2% on the top heavy test and is so happy he doesn't have to do the top heavy minimum for the 2016 plan year. He is now the sole owner, and his son also works there, but doesn't defer into the plan. The former co-owner sold his shares to the current sole owner in July 2014. Is he still counted as key for 5 years (2014 thru 2018) for determining Top Heavy? My client is trying to do some planning to see if his son can defer, and someone I talked to thought this had changed...the number of years a non-key is counted in the test. Note the former co-owner still works there and still has assets in the plan.

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!

Today my skills as a magician are being questioned, as I have failed to pull a rabbit out of hat.... A referral partner has brought us a situation with a client of his who is not our client. The party in question has a 401(k) plan that eliminated its Safe Harbor match in 2012 and has been subject to all testing ever since. This employer is angry because he has been told that for the first time, his plan became Top Heavy for 2018 based on the 12/31/2017 results of the test. He has been told that if he doesn't want to be obligated to make a Top Heavy contribution of any kind, then the Key employees cannot defer in 2018. Deferrals count, and even if a Key only deferred 1% of pay, then the company would owe the non-Key participants 1% of pay as a TH minimum contribution. Of course if any Key deferred 3% or more, then the company would have to make the standard 3% TH minimum contribution. The referral partner is looking to us for some kind of magic trick to allow the Keys to defer whatever they want to defer and somehow not owe a TH minimum contribution. My crystal ball must be cloudy or something because there's nothing I can find to do about 2018. For 2019, they should adopt Safe Harbor provisions again, whether it's the 3% SHNE or the basic SH match. If they aren't willing to do that, then they just have to accept the fact that the Keys can't defer. Am I missing something? The referral partner has been told that a "creative solution" should be found. I can think of all kinds of creativity for failed ADP/ACP tests, cross-tested formulas that don't work out, etc., but I don't know of a "creative" solution to Top Heavy! Any ideas will be appreciated. Thanks!

Plan is new - started 1/1/14. It has almost $71,000 in profit sharing receivables as of 12/31/14. No other type of receivables. Would you include the PS rec'bles in the top heavy test? There were also rollovers into this plan of a significant amount. I have them marked as a regular/outside rollover. They came from a terminated plan but from a different plan sponsor - company name and EIN entirely different. Because of this, I did not mark them are related. I assume that all participants were given an option to roll the money from the old MPP under the other company to this new plan or put it into an IRA. Thanks for your thoughts.

We have a safe harbor plan which provides both a non-elective contribution of 3% and a matching contribution which matches up to 6% of salary and provides 100% on the first 3% of salary deferred and 50% on the next 3% of salary deferred for a total match of 4.5%. The non-elective contribution is fully vested immediately though the matching contribution vests over 5 years. There is also a true-up at the end of the year on the matching contribution so that if an employee contributes over 6% for any period but not for the entire year, the true-up match will equal 4.5% of compensation contributed. This year, we are going to add an amendment requiring employees to be employed on the last day of the year to be eligible for the true-up, except in the case of death or disability. Does adding the last day rule, have an affect either on the plans qualification as a safe harbor plan or on whether the plan is required to perform the top heavy test?

Top Heavy Test: I understand unrelated rollovers are excluded from the amount of the participant's account balance as of the determination date. But what about subsequent transactions (in-service withdrawals of rollover money) associated with those dollars? Do these transactions get added back? Plan Document allows for in-service withdraw of rollovers. Example: PPT Jones deposits an unrelated rollover of $100,000 into Plan A on 7/1/2011. Jones takes an in-service withdrawal of rollover of $50,000 from the plan on 7/1/2012. Jones does not contribute deferrral and has received no employer contributions. As of the determination date of 12/31/2012, Jones has an account balance of $50,000. Question: 1. Would Jones be reflected as having an account balance for the top heavy calculation of $50,000? (account balance as of 12/31/2012 $50,000 minus $50,000 unrelated rollover attributable to account balance + $50,000 five year inservice withdrawal rule ) OR 2. Would Jones be reflected as having an account balance for the top heavy calculation of $0.00? (account balance as of 12/31/2012 $50,000 minus $50,000 unrelated rollover attributable to account balance and no reflection of in-service as it was part of an unrelated rollover) Thank you in advance for your opinions.