Top Heavy Issue

[Guest wjr]

If an employer has a safe harbor matching contribution and allows for an additional discretionary match (based on deferrals not exceeding 4% of comp) subject to some vesting schedule, is this additional match subject to Top Heavy rules? My understanding is that this design would not be subject to ADP/ACP but not sure about whether the Top Heavy rules would apply to this discretionary piece.

[Tom Poje]

The term ‘top-heavy plan’ shall not include a plan which consists solely of –

(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12), [ADP safe harbor] and

(ii) matching contributions with respect to which the requirements of section 401(m)(11) [ACP safe harbor] are met.

A discretionary matchas you described meets the requirements of (ii)

Note:The proposed regs (if passed as is) would clarify that you can NOT have allocation conditions on the discretionary match to be safe harbor.

you also can not envoke the otherwise excludable rule for purposes of allocation and get the free top heavy ride.

all this assumes there are no other contributions

[gholtz]

@Tom Poje I know it's been 17 years, but this thread is closely related to something I've been researching. Could you please point me in the direction of the regs that contain the safe harbor rules on allocation conditions on a discretionary match? 

[BG5150]

416(g)(4)(H)