Top-heavy contribution and 410(b) test

[alexa]

If a participant is just getting the top-heavy minimum in an integrated profit sharing plan, is he benefitting for purposes of the 410(B) test?

[KJohnson]

Yes, they are benefitting for 410(B). However, if you cannot pass 410(B) by treating them as not benefitting then while you don't have a 410(B) issue you will have an issue on whether your integrated formula is actually a safe harbor formula under 401(a)(4) because you have multiple formulas.

Under the safe harbor rules for 401(a)(4), there is an exception to the uniformity requirement for contributions, if the plan has multiple contribution formulas and one is the top heavy formula. But this exception to the uniformity requirement is available only if the plan can pass 410(B) coverage by treating an employee as not benefiting if his or her only allocation is the top heavy minimum. If the plan doesn't pass 410(B) by ignoring the top heavy contribution, it has not failed 410(B); it has failed the safe harbor 401(a)(4) rules and you must pass 401(a)(4) on some other basis.

[kocak]

Similar Question. Plan is a top heavy 401(k) plan with immediate eligibility for the 401(k) component and 21/1 for the PS. All participants eligible for the 401(k) get a 3% TH minimum allocation. Participants eligible for the PS component get an additional discretionary contribution.

When testing the PS for 410(B) are employees who have not met the age and service condition for the PS component excludable?

My software is telling me I fail ratio percentage because it is considering all employees as nonexcludable, using immediate eligibility. My document says I must meet ratio percentage (no going to ABT), but it seems counterintuitive that I would be benefitting a participant with an additional PS contribution, when they haven't even met the requirements for that component of the plan. Especially since I would meet 410(B) if it were two separate plans.

Michele