Safe Harbor and Top-Heavy after EGTRRA

[Guest Samwise]

Is anybody interpreting the new top-heavy exception for safe harbor plans to only apply to plans that have NEVER had any other types of contributions.

EGTRRA 613(d) says:

.........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.

That is, does "SOLELY" in the statute mean that no other types of contributions were ever made to the plan or does "SOLELY" mean no other contributions were made for the current plan year?

Thanks.

[Tom Poje]

Master Samwise:

No one knows for sure how to interpret this. From what I have read, most tend to figure the govt means on a current year by year test rather than 'if ever another contribution...'

of course, that may be wishful thinking, but logically there would be very few plans this rule could apply to otherwise. It would have to be a new plan with no profit sharing contributions. Now you are talking about a SIMPLE IRA, except with larger deferral limits. Personally I wouldn't think that is what the IRS intended.

[AndyH]

What about reallocation of forfeitures from a profit sharing/k plan where profit sharing contributions have been discontinued in the hope of satisfying the safe harbor. Do forfeitures cause a problem?