EGTRRA Section 416(g)(h) on "top-heavy" safe harbor plans

[Guest Lawrence_Groves]

A Safe Harbor Top-Heavy Plan that provides the 3% 100% vested contribution to satisfy the safe harbor and "top-heavy" requirements also makes a matching contribution of 50% up to 6% of deferrals.

Is the plan now out of the "top-heavy" exemption because it makes the additional matching contribution? And does the plan have to do the 401(a) test on the matching contributions?

[Blinky the 3-eyed Fish]

(Deleted due to the incorrectness of the reply.)

[Tom Poje]

maybe my brain is on hold from the weekend, but this would be my logic.

you indicated the plan makes a 3% SHNEC so ADP test is satisfied.

I will assume the match is discretionary, since it is 50% of the first 6% deferred the maximum match would be 3% of comp. This should satisfy the ACP safe harbor and no testing is required.

since it sounds like only safe harbor contributions were made, I believe you are top-heavy free.

[Guest mkimball]

I agree with Tom. If the match had been 50% of 8% deferred (matches deferrals > 6%), it would not meet the s/h ACP requirements and the top heavy exemption is blown.

[Guest Lawrence_Groves]

I am a little confused then. According to my understanding of Rev Rul 2004-13 FACTS

Situation 1. A nongovernmental profit-sharing plan containing a cash or deferred arrangement ("CODA") described in § 401(k) provides for safe harbor matching contributions that are intended to satisfy the requirements of § 401(k)(12)(B) and otherwise satisfies the requirements of § 401(k)(12). The plan also permits the employer to make a nonelective contribution for any plan year at the employer's discretion. The nonelective contribution is subject to 5-year vesting described in § 411(a)(2)(A) and is allocated to participants' accounts in the same ratio that each participant's compensation bears to the compensation of all participants. The plan is a calendar-year plan and covers all employees of the employer (including highly compensated employees as defined in § 414(q)) who have 1 year of service and are age 21 or older. Other than elective contributions and the matching contributions, no other contributions are made to the plan for 2004 and there are no forfeitures.

Situation 2. The facts are the same as in Situation 1, except the employer makes a discretionary nonelective contribution to the plan for 2004.

In Situation 1, although the plan provides for discretionary nonelective contributions, none are made for 2004 and thus only contributions described in § 401(k)(12) or § 401(m)(11) are made to the plan for that year.

In Situation 2, the employer makes a discretionary nonelective contribution for 2004, a type of contribution that is not described in § 401(k)(12) or § 401(m)(11).

HOLDINGS

In Situation 1, the plan meets the requirements of § 416(g)(4)(H) and is therefore not subject to the top-heavy rules in § 416 for 2004 because no other contributions are made to the plans other than contributions described in § 401(k)(12) or § 401(m)(11). The plan in Situation 2 does not meet the requirements of § 416(g)(4)(H) and are therefore subject to the top-heavy rules in § 416 for 2004.

It appears that by making a discretionary match of the 50% on the first 6% of salary deferrals in addition to the 100%vested 3% non-elective SH contribution, that because the match fits under401(m)(11) the "top heavy " exemption is saved. BUT had it been Situation 2 where the match was the 100% vested SH contribution and the discretionary contribution was non-elective and not nder 401(m)(11), that the "top heavy"exemption is lost? Is this correct??

[Blinky the 3-eyed Fish]

Obviously, my brain was still on hold. Please disregard my comments earlier.

[Brian Gallagher]

It sounds like, to me, that there was a SHNEC for the 3% and a match on top of that. Can you make both types of SH contributions?

Actually, it didn't sound like the match was SH becuase the poster did not say they were 100% vested.

[Harwood]

Matching contributions do not have to be 100% vested to meet the ACP safe harbor. You can have a 3% non-elective to meet the ADP safe harbor [100% vested of course] and a match that is not 100% vested to meet the ACP safe harbor.

ERISA Outline Book 2004, page 11.448

[KJohnson]

Without reviewing all of the prior guidance, my feeling was the same as Brians. I don't think that the Plan consists solely of elective deferrals and safe harbor matching contributions. While the additional discretionary match may satisfy the criteria so that you don't have to run the ACP test, I don't think that this makes it a "safe harbor matching contribution" Since the plan does not consist soely of deferrals and safe harbor matching contributons then top heavy applies. I thought Blinky's original answer was right. Whether there is an additional top heavy requirement is dependent upon whether the safe harbor NEC was based on an entire year's comp or only comp since the entry date.

[KJohnson]

I take it back..I went back and looked at the Code--- 416(g)(4)(H) only says that the match must satisfy 401(m)(11) and does not say that the match must satisfy 401(k)(12)(B). Since the match does satsify 401(m)(11) (but not the 401(k)(12)(B) ADP matching contribuiton safe harbor--that is done through the 401(k)(12)© NEC) then it looks like top-heavy is satisfied.