Safe Harbor Top Heavy Test

[Brenda Wren]

Are the accrued safe harbor nonelective contributions counted in the top heavy testing? I have a case where it makes a difference and would appreciate any references. My "vote" is yes since it is a commitment prior to 12/31.

[jaemmons]

yes they are counted in determining account balances for top heavy concentration and may be used toward satisfying the top heavy mins for the year, should the plan be top heavy for the current plan year.

[Mike Preston]

In the first year of the plan they are counted in the account balance, but are they counted in subsequent years? That is, the accrued contributions not made as of the end of the year.

[jaemmons]

Mike,

I don't understand your question (or am I just reading this too early in the morning?)

[Brenda Wren]

Let's see if I can clarify the original question. Discretionary profit sharing contributions that are accrued at year end are EXCLUDED from the top heavy test. We all agree on that (I hope!). Are safe harbor contributions that are accrued at year end excluded or included? Argument for exclusion - safe harbor contributions are technically profit sharing contributions and the plan is not subject to minimum funding. Argument for inclusion - safe harbor contributions are commitments as of 12/1 and therefore mandatory as of 12/31.

Does anyone know for sure?

[Mike Preston]

I suppose anything is possible, but my reading of T-24 of 1.416-1 seems pretty clear to me. If the plan is subject to minimum funding, you include accrued contributions. If it isn't, you don't. Unless you are dealing with the first year of a plan, in which case you count everything that is allocated as of any date within the first plan year, even if it isn't contributed until after the end of the plan year.

I really don't see any ambiguity. Famous last words, right? ;-)

[R. Butler]

I agree with Mike Preston. Don't include if not subject to minimum funding (unless first year). If we have a straight profit sharing plan with a fixed formula we don't include in top heavy, how is the safe harbor nonelective any different?

Only possible exception is for 401(k) deferral receivables. Deferrals might be considered plan assets even though they are not actually deposited by valuation date.

[Mike Preston]

I think it is a slippery slope. If you include the 401k deferrals, you then have to start including others, as well. Unless the IRS has something in writing stating that you include 401k deferrals that are accrued, I think the reg cite is still pretty clear in stating that they are not to be included.