safe harbor and top heavy

[FJR]

Just a refresher. If you have a 401(k) safe harbor plan with 1 year(1000 hrs) and 21 for eligibility and later decide to amend for immediate eligibility to defer and keep the 1 year for safe harbor and the plan is top heavy. The result would be to still give the safe harbor to those that satisfy the 1 year eligibility, but also give the immediates a top heavy min. contribution?

Any suggestions

[Tom Poje]

I think it depends on if there are other contributions - at least begining in 2002.

under section 613 Modification of top-heavy rules

(d)definition of top-heavy plan

.........the term 'top-heavy plan' shall NOT include a plan which consists SOLELY of -

(i) a cash or deferred arrangement which eets the requirements of section 401(k)(12), and

(ii) matching contributions with respect to which the requirements of section 401(m)(11) are met.

I still read that statement to say if you make other contributions, you blow the free ride on top-heavy. In other words, if you only make safe harbor contributions the plan really isn't top heavy!

in an earlier post someone indicated that they had approval language on a plan that had immediate deferral eligiblity but 1 year wait for ps (including top heavy). I have never seen that before, the ERISA Outline Book indicates you have to give top heavy to all as well, but who knows what you might get approved.

[FJR]

Tom, so what you are saying is that in 2002 the rules change when you have a top heavy plan with 2 different eligibility definitions. Meaning under the old rule you would have to contribute at least a top heavy minimum to those who come in immediately. Starting in 2002 having an immediate eligibility for the 401(k) cont. and 1 year wait for 3% safe harbor, you would not owe a TH contribution for the immediates?

[Tom Poje]

that is my understanding of the rules.

again, I don't think it is that the rules changed in regard to 'eligibility', but rather that the rules simply state that a safe harbor plan is a plan that is not top heavy even if the owner has 99% of the assets. in fact, if the safe harbor method was a match rather than the 3% nonelective, and no NHCE deferred then the HCE would be the only one who received contributions in that year.

and again, I stress the word 'solely'. (in regards to making other possible contributions)In all the articles I have read on top heavy and safe harbor, I have yet to see that mentioned, but I don't see any other way to read it.