Employer Contribution to Safe Harbor Plan

[Guest brstokes]

What are the rules regarding an employer contribution to a safe harbor plan - above and beyond the match. ie Can employer contribute 5% of employee W-2 on top of employer match?

[Guest earthy]

The IRS Notices indicate that an "additional discretionary match" may be made by the employer provided they do not exceed 4% of compensation.

Bottom line is that matching contributions may not be made a greater rate for HCE's than for the NHCE's.

[Tom Poje]

and the employer can make a discretionary profit sharing as well.

actually, the employer can make a larger discretionary match as well, but you would have to run an ACP test on amounts greater than 4% of compensation.

however, if there are additional contributions other than safe harbor, then you lose the free ride on top heavy begining in 2002.

whether this means you lose the free ride on top heavy forever or just the current year is open to debate.

[Guest Boilerburm]

Tom - what do you mean by "you lose the free ride on top heavy beginning in 2002"?

If we are putting in the 3% nonelective for safe harbor and add an integrated discretionary contribution, I assume we still meet top heavy requirements, right?

[Tom Poje]

maybe.

if you have immediate eligibility to defer you have everyone in the plan.

But you could limit the 3% safe harbor to only those who have completed a year of service.

If there were no other contributions - hence - 'solely', then plan is deemed to be not top heavy.

however, if you made additional contributions, all of a sudden the plan is top heavy - and you have to provide a 3% to all active less than 1 year people for top heavy - and it could be subject to vesting.

[KateSmithPA]

Tom, what if an existing plan that has salary deferral, employer match and employer discretionary converts to a safe-harbor plan in 2002. They are top-heavy. If they do not make any additional employer discretionary contributions and if they do not make any matching contributions over the safe-harbor limit, can they keep the free ride on top heavy? I guess what I am asking is does the fact that they have existing employer discretionary money in the plan mean they lose the free ride?