SH Match....TH pass

[K-t-F]

Employer makes an employer contribution... plan has a SH match... Because of the SH match the plan will pass the TH requirement... correct?

Also, due to the catchup deferral the plan exceeds the 25% 415 limit... but that is OK because it was the catchup that put it over. Right?

Sorry for the basic quesitons...

[ERISAnut]

Every contribution or allocation made to the plan during the year must satisfy the ADP/ACP safe harbors in order for the plan to be deemed to satisfy Top-Heavy for the year. Therefore, when the employer makes an additional employer contribution, they must now test for Top Heavy.

Therefore, when designing these plan, but sure that any forfeitures are used to reduced employer contributions so that there is no allocation of funds outside of the Safe Harbor contributions.

[Tom Poje]

there is no such thing as 25% 415 limit.

415 limit is now 100% of comp or the indexed dollar limit.

there is a deduction limit that is 25%, but deferrals aren't counted so that can't be it either.

[Brenda Wren]

Thought I would chime in here as this question relates to my question of the day. First of all, I don't think it is appropriate to say "you don't have to test a plan for top heavy if it is solely safe harbor". All plans should be tested every year......whether or not you need to fund additional contributions to satisfy the top heavy rules depends upon whether or not you are indeed "solely safe harbor" for the next plan year.

Just took over a case that did exactly that......did not perform top heavy testing for 05 so until I do the test myself I don't know if the plan is top heavy for 06. In 06 we are planning to fund a discretionary contribution on top of the safe harbor.

Question: This takeover plan also allowed employees to defer after 3 months, but only gave the safe harbor match to those that had a Year of Service. I don't know yet for sure, but assuming the plan is top heavy for all prior plan years, the plan has not satisfied the top heavy requirements for the otherwise excludable group. Would the correction be (a) provide 3% top heavy minimum (subject to vesting) to all members of the excludable group or (b) provide the fully vested safe harbor match to the members of the excludable group who deferred?

[ERISAnut]

Splitting hairs. When designing plans (especially for smaller employers) where the majority of the benefits will be weighted toward the owners, the notion of Safe Harbor Plans being deemed to satisfy Top Heavy is one of your primary considerations. Outside of what you deem appropriate, the rule is there and it should be considered.

[Tom Poje]

you make some good observations.

now, without looking it up, I think if a plan splits the participants into otherwise excludable then there is no free ride on top heavy - if the plan is top heavy you have to give to all - though safe harbor contributions can be applied to top heavy ( depending on document language)

[Brenda Wren]

Thanks, Tom. I did look it up and you're right....there is no free ride on top heavy for the excludable group (Corbel Technical Update 1/30/04 and 3/13/03).

If the top heavy plan had provided the safe harbor match to everyone there wouldn't be an issue, right?

But since it didn't, which is the correct fix?.....3% to all subject to vesting or SH match to those that deferred?

The Corbel technical updates referenced above are leading me to the 3% for all which obviously is not the answer I want to hear!

[Tom Poje]

correct, if everyone gets safe harbor (and there are no other contributions) plan gets free pass.

(I wanted to argue you had 2 plans - one safe harbor and one for otherwise excludables and run top heavy the same, but it doesn't look like it works that way.

if the plan has language that says otherwise excludables dont get safe harbor, then I don't think you can correct by giving them since you have 'no valid reason' for taking such action.

any top heavy can be subject to vesting.

if document says match counts toward top heavy - or at least I don't know why a safe harbor match can't count toward top heavy - it is still a match - then assuming most people received the basic match they would already have satisfied top heavy.

[Brenda Wren]

Tom, to clarify, let me repeat what I think you are saying.

A top heavy safe harbor plan that limits the safe harbor contribution to only those with a Year of Service is NOT exempt from the top heavy rules. Furthermore, the plan is required to fund top heavy minimums for ALL eligibles still employed at year-end (not just those in the excludable group). However, assuming EGTRRA good-faith amendment correctly in place, the safe harbor matching contribution can be used towards satisfying the top heavy minimum.

I agree, although the answer is even worse than I thought!

Even worse for my client, the plan has immediate vesting for PSP contributions!!!

[Tom Poje]

for better or worse, that sounds correct, or at least how I understand things.

and top heavy is based on total comp and not from entry date

it is possible top heavy only goes to non key employees depending on how the document is written

or I suppose if you are talking about the 2006 year then you simply dont make the discretionary profit sharing and just have safe harbor contributions