Top Heavy Safe Harbor Cross Tested

[Guest cease]

Hi. I have reviewed prior posts related to the question I am going to ask and would like confirmation of the following:

A profit sharing plan that has a 401(k) feature elects the 3% non-elective safe harbor for the 2002 calendar year. The plan uses a cross-tested method to allocate contributions. The plan is top-heavy. For the year, the employer makes the 3% fully vested contribution to all employees. The employer provides an additional 6% to its HCEs (which satifies 401(a)(4) requirements).

Please confirm that the plan has satified the top-heavy minimum benefit, the gateway minimum and the ADP test, i.e. does not matter what levels of salary deferral contributions have been made between HCEs and NHCEs.

Thank you.

[Tom Poje]

I would say YES to all your questions.

I am assuming that the 401(a)(4) test, you did not impute disparity, since you can not impute on the safe harbor piece.

[Guest cease]

Thank you for the confirmation. Disaparity was not imputed.

[AndyH]

cease, you do understand that the plan needs to be general tested, right?

Some people think that satisfying the gateway satisfies the test; just want to make sure that you know that the plan must satisfy BOTH the gateway and the general test, i.e. the cross test.

[Guest Pensions in Paradise]

[For the year, the employer makes the 3% fully vested contribution to all employees. ]

If this means that the 3% was based on total compensation for the plan year, then Tom is correct. However, remember that for cross testing and safe harbor purposes, you can limit the contribution to compensation earned after plan entry. But for top heavy purposes, the contribution must be based on total compensation for the plan year.

[Guest cease]

Just in case you were wondering if I was paying attention...

Thanks for the additional comments. Yes, I understand that contributions need to satisfy the general test (cross-testing) as well as meeting the gateway minimum. As is the case with the plan I am reviewing, the 3% contribution was based on compensation for the entire year. The reason this was done was because the plan is top-heavy.

One additional question that comes out of the responses is Pensions in Paradise comment regarding the limitation of contribution due to compensation earned from participation date - If the plan document says that "amounts that would otherwise be considered Compensation under any other provision of this document but are received prior to the date an Employee becomes a Participant will be counted as Compensation" - does this mean that if a plan was not top-heavy, that the safe harbor QNEC or cross tested allocation still has to be based on all compensation (prior to participation)?

[Guest Pensions in Paradise]

It depends on what the document states. From what you quoted, it sounds like the plan uses total compensation. In that case, even if the plan were not top-heavy, you would have to use total compensation to calculate the cross tested & safe harbor contributions.