Triggerring the Top Heavy Minimum

[Guest chris4013]

I thought, where there was only 401k contributions EGTRA removed the TH requirement. I also thought that maybe the match wouldn't trigger the TH minimum anymore.

I can not find anything to support this in the ERISA outline book.

Will 401k contributions trigger the top heavy minimum?

[jaemmons]

Plans which are safe harbored under IRC 401(k)(12) and 401(m)(11) are exempt from top heavy if the only contributions made to the plan are pursuant to these code sections, including elective deferrals.

Aside from that, the basis for top heavy minimums generally starts with the highest deferral rate for key ee's. So yes, deferrals do trigger top heavy mins if any key is deferring during the top heavy plan year.

[Tom Poje]

I would add, if plan is safe harbor plan and plan uses otherwise excludable option, then plan does not get top heavy free ride

[Guest chris4013]

Tom - In that case, would the th min only be allocated to those excluded from a th contribution?

[Tom Poje]

Personally, I don't know for sure. The comments I have read from others would seem to say if you go 'otherwise excludable' then the plan loses its free ride on the top heavy because the plan consist of contributions other than just the safe harbor ones.

I am still hung up on Q-10 on Notice 2000-3 (The answer to this one is incomplete in the copy I have, I have looked it up a couple of times, it simply isn't there) And granted, this was written before EGTRRA

Anyway, Q-10 says the plan is treated as two separate plans, and 'accordingly, a plan that uses one of the 401(k) safe harbor methods is not required to provide...blah, blah, blah. Those employees do not have to be treated as eligible for purposes of the 401(k) safe harbors, so long as the employer has elected to treat them separately for coverage purposes pursuant to section 410(b)(4).

Now T-6 of 416 says I am required to aggregate plans in which the key person participates. The example says "An employer maintains two plans. Key employees participate in one plan but not the other...." End result, you only provide top-heavy to the plan in which the key person participates if you pass coverage.

so, I am hung up on the concept of Q-10 saying I treat the plan as two separate plans, and then 416 implies I do not have to aggreagte them -I only have to provide the top heavy in the plan the key person participates, but since that one is safe-harbor I don't have to provide the minimum. I guess it depends on the interpretation of what 'plan' means.

I have heard tell of plans that have actually received determination letters whose language does not provide the minimum to otherwise excludables (and this is in a plan that is not safe-harbor 401(k)) This would seem to be consistent with what T-6 says.

But then, who am I to say?

[R. Butler]

"...Anyway, Q-10 says the plan is treated as two separate plans, and 'accordingly, a plan that uses one of the 401(k) safe harbor methods is not required to provide...blah, blah, blah. Those employees do not have to be treated as eligible for purposes of the 401(k) safe harbors, so long as the employer has elected to treat them separately for coverage purposes pursuant to section 410(b)(4)."

My difficulty with this position is that Q&A 10 basically just allows us to apply the rules already established in 1.410(b)-7©(3) to safe harbor plans. If we were truly treating the disaggregated portion as a separate plan we would separate run a top heavy test on the disaggregated portion, but we all know that is not the case.

[Tom Poje]

I understand that position, but, on the other hand, if the IRS has issued a determination letter for plans that have immediate eligiblity for deferrals, but have 1 year wait for ps, and those ees who have not worked 1 year are excluded from top heavy, then either

1. something got slipped by the IRS

2. they must take the stance of the possibility of 'top-heavy disaggregation', for lack of a better term.

or, perhaps, put another way, if I take one of those documents that has such a determination letter and change it from 401k to a safe harbor 401k, then what happens?