410(b) Coverage Testing Issue w/ Safe harbor Allocation vs. Top Heavy Minimums

[Guest RDS METRO]

I have a Plan that requires 1000 hours for a participant to receive an allocation (integrated PS) for any given year. I am getting a warning that I am failing the "Special" ratio percentage test because I have more than 30% of my NHC Group that is only receiving a 3% TH contribution and not the full contribution since they only worked 700 hours during the year.

Assuming that my document would allow it, do I need to ensure that some of these "not benefiting" participants receive the full contribution vs. just the TH 3% minimum that they are currently receiving? If I test the Plan under the 401(a)(4) General Test and pass, is this sufficient?

Any thoughts would be greatly appreciated - I reviewed the 401(a)(4)-2(b)(4)(vi)(d)(3) Regulations and "surprisingly" become more confused.

Thanks

RDS

[Brenda Wren]

see similar posting by rmwright

[Blinky the 3-eyed Fish]

I copied a bit of what I wrote in that post referenced because I wanted to add a little. Here:

If someone receives ONLY a top heavy minimum, you are still allowed to treat the plan as having a safe harbor formula if you can pass coverage by treating the person as not benefiting. See 1.401(a)(4)-2(b)(4)(vi)(D)(3).

But if you treat the people receiving the TH only as benefiting, then you must run the general test as you mention, and if you pass, then you are done.

Now what you need to be careful about is how your document reads. Being a safe harbor formula, it very well may require you to treat those receiving a TH minimum as not benefiting in order to maintain the safe harbor formula. It also, then may require you to pass the ratio test for this purpose.

[Tom Poje]

and be careful when you run your test.

If you test on an accrual basis, you would be cross testing, and this might require providing the gateway.

wouldn't want you to forget that a be like a fish out of water....er....