top heavy contribution in SH plan

[betheeg]

i have a SH 401(k) with basic match and that has a PS component. For 2003, if the employer only makes the mandatory match and does not do an additional PS contribution, do i have to make an additional top heavy contribution? i read this in one of my resources:

With the enactment of EGTRRA, a 401(k) plan providing a safe harbor match contribution will no longer be required to provide additional employer contributions to satisfy the top-heavy minimum contribution rules so long as no other employer contributions are made to the plan. [i.R.C. § 416(g)(4)(H)] In addition, even if the exemption does not apply, matching contributions can be taken into account in determining whether an employer has satisfied its top-heavy minimum contribution obligation. [i.R.C. § 416©(2)(A)]

just want to make sure i'm reading this correctly.

thanks for the help.

[Tom Poje]

you are correct, if there are only deferrals and the safe harbor the plan is not considered top-heavy. be careful of forfeitures (or make sure document says forfeitures used to pay plan expenses)

you are also correct. matches can be used to satisfy top heavy.

I suppose another exception would be if plan had immediate eligiblity but safe harbor was not allocated to the otherwise excludables. in that case, the plan would be top heavy

[betheeg]

Tom-

I just want to be clear. For the year 2003 there was only def & SH match. But there have been PS contributions in prior years. So there are account balances in an another employer account besides SH match. So is the plan considered not top heavy for 2003? Owner has 90% of the assets.

Same plan but another subject, say in 2004 the only elig ee does not defer anything. what would be the employer SH match to that 1 employee if no ps contribution? 3%? or nothing? SH match is 100% up to 3% of comp, 50% for the next 2% of comp.

thanks again for the help.

[Tom Poje]

it does not matter if there were prior contributions or account balances.

rev ruling 2004-13 makes that real clear. this ruling is only 2 or 3 pages long and consists of 4 examples. do a search and print it off for your records.

if no one defers, then there would be no safe harbor match for that year.

not sure why one would have a 401k plan with no deferrals but thats neither here nor there.

since the key ee received 0 there would be no top heavy anyway, but I think this plan would still be exempt from top heavy anyway. regardless,

All the regs say is that a plan consist solely of satisfying 401(k)(12) [adp safe harbor] AND also of 401(m)(11) [acp safe harbor] satisfies top-heavy.

I am troubled enough by that wording. a plan that has a SHNEC satisfies 401(k)(12). but what about the 401(m)(11) piece, which consists of some type of match.

The regs could have simply said the plan consists of a contribution that satisfies 401(k)(12) - but it doesn't.

[betheeg]

I'm sorry Tom. What I meant to ask is if owner defers 13,000 and the 1 elig nhce defers nothing, what would be the SH match requirement for that 1 employee? thanks again for all your help.

[Tom Poje]

believe it or not, only the owner would get the safe harbor match, and plan is not top heavy.

In the case of a small plan, I would make sure that all NHCEs sgn something that says they are aware the safe harbor exists, that they have received notice, and they chose to defer 0.

more so just to protect the owner, in case plan was ever audited

[R. Butler]

I'm sorry Tom. What I meant to ask is if owner defers 13,000 and the 1 elig nhce defers nothing, what would be the SH match requirement for that 1 employee? thanks again for all your help.

Again though, as Mr. Poje points out in an earlier post, be careful of forfeitures. If you have reallocated forfeiture money that may trigger top-heavy contributions to the non-key