EGTRRA Top Heavy Question

[RTK]

A couple of threads have concluded (or at least expressed a concern) that an additional employer contribution destroys the top heavy free ride under the EGTRRA provision that a top heavy plan does not include a plan that consists solely of safe harbor 401(k) and safe harbor matching contributions.

Here is an interesting twist. I have a multiple employer ps plan that allows each employer to elect (1) a fixed percentage of compensation profit sharing contribution (3% minimum) for its employees and (2) whether its employees may make 401(k) elective deferrals. If the employer elects 401(k) elective deferrals for its employees, the employer contribution is made as a safe harbor contribution to avoid ADP testing. Top heavy has not been practical issue for this plan since an employer must elect a 3% minimum employer contribution in any case and all other top heavy requirements are met as a matter of plan design.

A provision may be added to permit an individual employer to elect 401(k) elective deferrals and safe harbor match for its employees (but no other contributions). This would generally have top heavy consequences since a 3% top heavy contribution would not be made as a matter of plan design.

Existing top heavy regulations (circa 1982) apply the top heavy requirements to a multiple employer plan, "but only with respect to each individual employer." (G-2 of Regs.) I read this (and T-2 and T-8 of Regs.) as requiring that each employer be separately tested for top heavy using only its own employees. Also, if one employer is top heavy, the top heavy contribution requirements apply only to that employer's employees. Thus, a multiple employer plan can be top heavy for one employer, but not for the others. Essentially then, each employer is treated as having a separate plan for top-heavy purposes.

The question is: Does the fact that one employer under a multiple employer plan can or does elect an additional employer contribution destroy the EGTRRA free ride for the employer electing only a 401(k) elective deferrals and safe harbor matching?

I think the answer should be "no" (i.e., free ride applies) because the top heavy requirements apply to a multiple employer plan on an employer by employer basis.

Obviously, there is no definitive answer. But if you have an opinion (or heard this issue discussed somewhere), I would like to hear it. Too bad I just can't write the appropriate amendment and get a determination letter. You gotta love this good faith reasonable determination stuff.