Two plan Top Heavy Testing and Safe Harbor Exemption

[Guest luv]

Employer has two plans: 401k with one year wait for salary deferral and 4% safe harbor match. Post EGTRRA, no discretionary match and no discretionary profit sharing in the 401(k) Plan. The second plan is a Money Purchase Pension Plan with a two year wait for entry and a 7% formula. EGTRRA now exempts from top heavy a safe harbor 401(k) using the safe harbor match. The MPPP provides the TH minimum (by election) in the MPPP. So post EGTRRA, would you agree that there is no TH contribution required in the 401(k) Plan for a nondeferring participant not yet eligible for the MPPP, but eligible for the 401(k) plan, even though under old rules the combined plans test topheavy?

[Tom Poje]

hmmmmmmmmmmm.

the regs say: (Sec 613)

The term 'top-heavy plan' shall NOT include a plan which consists solely of

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

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

basically, if the plan only has safe harbor contributions, it is not considered top-heavy

but then the following paragraph follows:

If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan MAY be taken into account in determining whether any other plan in the group meets the requirements of subsection ©(2).

now, I have no real clue what this paragraph is saying, especially with the word MAY thrown in there. Heck, I can't even figure out what subsection ©(2) refers to - that appears to pertain to top heavy determination replacing the 5 year look back with a 1 year look back.