Safe Harbor 401(k)

[Guest Gordy]

Do I have this correct?

Employer has 401(k) Safe Harbor plan Plan uses the matching contribution to meet safe harbor. No other contributions are made other than employee deferrals so top heavy is not an issue.

Doctor is the only employee deferring, hence the only one getting employer match.

Safe habor is met, but, no other discrimination issues?? $20,000 for himself $0 for staff.

Thanks.

[ccassetty]

I would just want to be certain that the other staff have truely been given the opportunity to join the plan. It sounds fishy that none of his staff would take the Doctor up on the matching contributions. Better be careful that there isn't some kind of coercion or other deception going on.

If, in fact, the other staff have legitimately opted not to participate, then the good Dr. can get the $12,000 deferrals and the $8,000 safe harbor match based on an assumed salary of $200,000 and $0 for staff.

No other issues, those that opt not to make deferrals are still considered benefiting for 410(b), and as you noted, Top Heavy is not an issue. This assumes a timely safe harbor notice was provided.

[four01kman]

I would want to make sure a copy of all the notifications to the non-participating employees was kept, together with a memo regarding when the notices were sent and the employees notified of the plan and its match.

[actuarysmith]

I agree with the follow up posts.

However, I wanted to "chime in" on one particular comment made in the original post by GORDY.

The statement is made that since it is deferral only, that Top-Heavy is not an issue.

The reason that Top-Heavy is not an issue is due to the fact that this is a Safe Harbor plan - period. It has nothing to do with the fact that it is deferral only.

A traditional 401(k) (i.e. other than safe harbor) can be Top-Heavy even if it consists of salary deferrals only.

This is one of the most understood facts regarding Top-heavy.

For example, if you have a new plan (first year.) One Doctor, two employees.

Doctor Defers $12,000, one employee defers $6,000, the other employee defers nothing. The plan is Top-Heavy! (12/18 = 66.7%).

All non-Key employees are required to receive 3% of pay.

I only make a point of this because some wrongfully assume that salary deferrals don't trigger a potential Top-Heavy issue. They can.