Top heavy safe harbor plan

[Guest Melissa Winslow]

I have a top heavy DC plan that adopted a safe harbor plan in 2000. The plan allows for deferrals, has a fixed match that satisfies the safe harbor basic match contribution (starting in 2002) and has a discretionary profit sharing contribution option.

If the sponsor opts to make a profit sharing contribution in 2002, would we need to be sure that all eligible non-deferring participants receive at least 3% of compensation in order to meet the top heavy minimum contribution requirements?

[R. Butler]

Yes. §613 provides that safe harbor 401(k) will not be top heavy if it consists "solely" of deferrals and the safe harbor 3% or matching contributions.

EGTRRA does allow matching contributions to be applied towards top heavy, so nonelective contributions won't necessarily have to be provided to participant's receiving a match.

[Guest Melissa Winslow]

Thanks -

So, if the sponsor chooses to make a discretionary profit sharing contribution, those participants that DID NOT receive a match (since they are not deferring) should receive enough of the profit sharing contibution to satisfy the 3% minimum required contribution - since the plan falls under the definition of a top-heavy plan. True????

[KJohnson]

True and if any non-keys received a match but that match was not 3% of comp they would need an additional contribution to equal 3%.--

Where you have an even more interesting issue is where the employer decides not to make a discretionary profit sharing contribution for the plan year but the provison allowing for a discretionary contribution remains in the plan. Arguably, this employer will also not qualify under the "solely" test.

[R. Butler]

"Where you have an even more interesting issue is where the employer decides not to make a discretionary profit sharing contribution for the plan year but the provison allowing for a discretionary contribution remains in the plan. Arguably, this employer will also not qualify under the "solely" test."

That is an interesting thought I had not considered. I hope that it is not the case. Just for flexibilities sake, most of our Plans provide for a discretionary contribution even if one is not made.