NON TOP HEAVY SAFE HARBOR 401(k) PLANS

[Guest Julie Woulfe]

Does anyone have a link to IRC 416(g)(4)(H) ? When I use the IRC link, it is not there.

The questions I am trying to answer in regards to non top heavy safe harbor 401(k) plans are as follows:

1) if the Plan document has a discretionary P/S formula, but ER does not ever intend to make a contribution, does that qualify as a Plan consisting solely of a safe harbor 401(k) arrangement?

2) Can the matching contribution be discretionary, and therefore can there be zero matching for some years?

[david rigby]

Here is a link to section 416. http://www.fourmilab.ch/ustax/www/t26-A-1-...-D-I-B-416.html

I do not know if this site is reliably maintained.

[Guest Julie Woulfe]

Thanks, but I don't see 416(g)(4)(H) there either!

[david rigby]

This site is maintained (perhaps not well) by the Cornell law school:

http://www4.law.cornell.edu/uscode/26/416.html

Section 613(d) of EGTRRA

http://thomas.loc.gov/cgi-bin/query/D?c107...p/~c107AmWnpQ::

added 416(g)(4)(H):

"(d) DEFINITION OF TOP-HEAVY PLANS- Paragraph (4) of section 416(g) (relating to other special rules for top-heavy plans) is amended by adding at the end the following new subparagraph:

`(H) CASH OR DEFERRED ARRANGEMENTS USING ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS- The term `top-heavy plan' shall not include a plan which consists solely of--

`(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12), and

`(ii) matching contributions with respect to which the requirements of section 401(m)(11) are met.

If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection ©(2).'."

[Guest Julie Woulfe]

Thanks very much......has there been any updates from the IRS/Treasury on how to interpret this? (see my original questions)

[R. Butler]

Their was a prior post by Tom Poje (I think) in about November that referred to an IRS Q&A at the ASPA Annual Conference. The IRS indicated that the plan will still be soley safe harbor if discretionary profit sharing was provided for in the document, but not used.

I'm confused by your second question. How are you meeting safe harbor with the 3% or the match? If you meeting it with the match, than at least the safe harbor match isn't discretionary.

[R. Butler]

I found the post on the discretionary profit sharing question:

http://www.benefitslink.com/boards/index.p...=20&t=16949&hl=

[Tom Poje]

Julie:

Yes, the match can be discretionary, and not used in some years, but this would only satisfy the ACP safe harbor and not the ADP safe harbor.

And yes, at the ASPA conference the IRS said if you don't exercise the profit sharing option then the plan is 'solely' safe harbor - though apparently with a caveat.

Based on prior posts, if the plan allocates the safe harbor to statutory includables only, then the plan no longer is 'solely' safe harbor.

(Personally I still am not convinced on that point, but what the heck, I am a bit overrated on my knowledge!)

[Guest Julie Woulfe]

Thanks for the thread

My second question refers to meeting Safe Harbor with the 3%.... that is, the only contributions are the deferrals and the 3%, though the document does call for a discretionary match. I"m pretty sure that this would then qualify as a non top heavy safe harbor 401(k) plan, even though a match is not actually being made.

One final similiar question..... a top heavy P/S Plan is amended to be a 401(k) Plan. The contributions are now only deferral and Safe Harbor Match. There will no longer be any P/S contribution (though the P/S is discretionary in the document). Is this now a non top heavy safe harbor 401(k) Plan?

[Guest Julie Woulfe]

Tom. Thanks.....yes, I've read the thread regarding the excludable employees

[R. Butler]

A discretionary match provision wouldn't make the plan top heavy. Employer could actually make the match and as long as it meets the requirements of 98-52 (ie, match doesn't exceed 4% of comp., match doesn't consider deferrals in excess of 6%, etc.) the plan isn't top heavy.

[Guest Richard Scheer]

Maybe I'm missing something, but once the employer decided to meet the Safe Harbor requirements by makeing the mandatory 3% contribution, what's the difference if the Plan is top heavy or not? You are already giving the top heavy minimum contribution to the non-key ee's with the safe harbor non-elective contribution.

[Mike Preston]

I think the SH contribution can be 3% of compensation while a participant, while TH requires 3% of full year compensation. SH can also only be directed to NHCE's, while TH must be directed to those who are non-Key. Hence,there are differences. Sometimes those differences are significant. Sometimes not.

[R. Butler]

Vesting comes immediately to mind if there is existing money in the plan or if discretionary matching contributions will be made.

Also, top heavy requires you use to look at full year wages for the minimum, safe harbor can exclude comp prior to participation.

[Guest Julie Woulfe]

Any answers to this question?

a top heavy P/S Plan is amended to be a Safe Harbor 401(k) Plan. The contributions are now only deferral and Safe Harbor Match. There will no longer be any P/S contribution (though the P/S is discretionary in the document). Is this now a non top heavy safe harbor 401(k) Plan?

[Tom Poje]

yes, the iRS indicated as long as there are no other contributions (even if there were previous one) then the plan is not top heavy.

[Guest Julie Woulfe]

Thanks, Tom. I understand, but it is bizarre.