401(k) Safe Harbor Plan

[Guest Scrappy]

If a 401(k) safe harbor plan excludes the highly compensated employees from the safe harbor contributions, and the plan only makes safe harbor contributions and no other contributions, is this still considered a plan making solely safe harbor contributions, and therefore gets the pass on top heavy?

[R. Butler]

Sure, safe harbor not required to be given to HCEs. See IRS Notice 98-52; it references that safe harbor contributions must be provided to NHCEs.

[sloble@crowleyfleck.com]

I believe your off the hook for top-heavy. Design-based safe harbor plans need only make the safe harbor contribution to non-HCEs. 401(k)(12)©. Rev Rul 2004-13 says that when ONLY safe harbor contributions are made the plan is not subject to top heavy.

[Archimage]

First, your document will have to state that top heavy minimum is given to non-key employees. Second, you are going to have a problem if you have an HCE that is not key. Your document will state that the HCE has to receive the top heavy minimum.

In short, I think you are going to have to do some kind of top heavy calculations depending on the demographics of the company.

[R. Butler]

I disagree with part of Archimage's post. I don't see a problem if you have a non-key HCE. The initial post states that the plan consists only of safe harbor contributions. Notice 98-52 states safe harbor contributions have to be provided to NHCE's. Assuming your document has been properly updated for EGTRRA the a 401(k) plan consisting solely of safe harbor contributions won't be subject to top heavy.

[Archimage]

I agree that is how it is written. However, I wouldn't want to stand on the position that the IRS would interpret it that way.

[R. Butler]

How could the IRS reason differently? The IRS would have to take the position that the plan does not consist solely of contributions meeting safe harbor. What other contributions are there?

[Guest Scrappy]

I believe that the plan is not top heavy. I could find nothing stating that it would be; although there is clear guidance about the "otherwise excludable employees", etc. Could this be a "loophole"?

[R. Butler]

I believe that the plan is not top heavy. I could find nothing stating that it would be; although there is clear guidance about the "otherwise excludable employees", etc. Could this be a "loophole"?

The post doesn't state that otherwise excludables are not getting the safe harbor contribution. You are correct, if it that is the case the answer would change, but again that it is not stated in the initial post & that is a different issue from not providing safe harbor to HCEs.

[Guest Scrappy]

All NHCEs are getting safe harbor. Eligibility for 401(k) and safe harbor are the same. I was only using the excludables as an example where the regs are very clear (because not all employees are getting safe harbor).

After what I read, I agree plan is not top heavy because of safe harbor pass, and although there might be HCE non-key participants in the plan, these employees do not get a 3% top heavy minimum.

In some instances, this is a good thing.

Thanks.