Integrated Top Heavy Plans with Match

[Guest At Peace]

We have a 401(k) Plan (standardized prototype) with a 4 tier integration formula for the discretionary contribution and a safe harbor match provision. The plan is top heavy, which is why the 4 tier was originally elected - to cover the 3% required minimum.

The document has the good faith amendment for EGTRRA, which provides that the match contribution can be used to satisfy the top heavy minimum.

If the discretionary contribution is allocated according to the first step of the 4 tier integration, the top heavy minimum is met here, rather than utilizing the match contribution as EGTRRA provides.

Do you think the actual EGTRRA restatement will change the verbiage to permit skipping the steps for the minimum required if the plan provides for a match contribution (similar to skipping the steps if another plan provides for the minimum)?

What options do you see in this situation in the interim? We have our ideas, but would like to see what everyone else thinks.

Thanks for your input!

[WDIK]

Do you think the actual EGTRRA restatement will change the verbiage to permit skipping the steps for the minimum required if the plan provides for a match contribution (similar to skipping the steps if another plan provides for the minimum)?

The discretionary profit sharing plan contribution is allocated based on the wording of the plan document and is separate from the matching contribution. Although the tiered approach you describe was designed to ensure that top-heavy minimum contributions were made, I do not see how providing a match would allow you to "skip" this step. Further, I don't think you can "skip" this step in the allocation just because another plan is providing the top-heavy minimum.

Just one person's opinion.

How would you propose that the allocation "verbiage" for the profit sharing contribution be changed in the context of a standardized prototype?

[Tom Poje]

I would agree - you have to follow the terms of the document.

It would be hard to imagine a scenario in which something other than that would come into play anyway.

consider a plan with an HCE who received a 3% match and an HCE who received a 3% match.

are you considering skipping step 1 since both received a top heavy minimum?

In that case the HCE would receive 3% integrated. at that point you have a nonelective contribution 0% base + 3% excess. hardly seems legal.

Or are you trying to argue since both received a minimum you will allocate 1.5% base plus 1.5% excess. I guess you could write a document this way (not what yours says), but even this would 'fall apart' if you had an NHCE who received 0 match, because you would still have to provide the 3% to start with.