Safe Harbor

[Guest A. Gordon]

I have a client that has a 401k and Profit Sharing Plan. We are amending the 401k to make it a safe harbor effective 1/1/04, using the safe harbor match. The intention is to not make any additional contributions to the profit sharing plan. The only contributions going into the plan will be employee deferrals and Safe Harbor match. Notices to participants will be provided before 12/1/03. My understanding is that as long as we have only deferrals and safe harbor match going into the plan, we'll pass ADP/ACP and top heavy. I have told the administrator that if additional discretionary contributions are made, we would have to test the plan.

In terms of general safe harbor rules, is there anything else that I'm missing or need to be aware of? Sorry, I haven't done many safe harbors and I want to make sure I'm covering everything.

Thanks for your help!

[Tom Poje]

I think to be on the 'safe' side, have any forfeitures from the profit sharing reduce plan expenses. otherwise I think you have the top heavy issue.

[Brian Gallagher]

Just out of curiosity, how would allocating forfeitures to people mess up passing top heavy?

[Tom Poje]

the safe harbor top heavy freebie rule implies no allocations other than deferral and safe harbor. once you give someone a forfeiture you have given them an allocation other than permitted.

[Guest A. Gordon]

thanks for your help on this - I didn't even think about the forfeiture issue. Fortunately, this plan has immediate 100% vesting for the profit sharing money, so we shouldn't run into problems with it. Definitely a good point to keep in mind for future safe harbors. Thanks again.

[Guest Richard Scheer]

Tom,

Assuming the Plan allows it, couldn't they use any PS forfeitures to offset the required Safe Harbor contribution and not have to worry about any top-heavy requirements?

[Tom Poje]

I believe the answer is yes.

of course, as you noted, the document rules

[smm]

If this plan allows for and the employer makes a discretionary profit sharing contribution to this plan, would the employer also be required to make a minimum top he?avy contribution

[R. Butler]

If this plan allows for and the employer makes a discretionary profit sharing contribution to this plan, would the employer also be required to make a minimum top he?avy contribution

Plan would be subject to top heavy minimum contribution requirement. Top heavy pass is for plans consisiting solely of deferrals & safe harbor contributions. See EGTRRA §613(d)

[smm]

Thanks. That's what I thought.

[Tom Poje]

Yes, if ps made. however IRS was clear if no ps made you are ok.

at 2002 ASPA conference, Q 21 the following was asked:

Plan has the following contribution types

1. 401k

2. 401m

3 discretionary profit sharing.

plan is top heavy. no profit sharing will be made in the future. can match safe harbor satisfy top heavy?

Answer - Yes, however if no profit sharing contribution is made such that the only contributions made are deferrals and safe harbor match, then the plan is not top heavy, and no top heavy is required.

[Brian Gallagher]

tom,

is the p/s contrib affecting a year to year thing? for example, assuming every year deferrals and s/h match and top heavy: 2003 no p/s, no t/h contrib, 2004 will do p/s, therefore t/h needed, 2005 no p/s, no t/h, etc...

[Tom Poje]

based on the IRS opinion, yes.

although if no ps is made and there are forfeitures, then you are still top heavy