Safe-Harbor + Top-heavy

[Lou S.]

If a safe harbor 401(k) plan that makes the 3% safe-harbor nonelective contribution for all NHCEs (HCE excluded) is also top-heavy, does the plan satisfy the T-H contribution requirement if they have non-key HCEs who are not receiving the 3% S-H contrib?

They do not want to make any additional er contrib besides the 3% to all NHCEs.

[J Simmons]

The 3% safe harbor counts towards the top heavy required minimum contribution, but might not satisfy the top heavy required minimum entirely.

This could be because you may have employees that are not key employees (416i) and thus entitled to the top heavy minimum although they are HCEs.

This could be because you define compensation for the safe harbor purpose as only from the time of mid-year entry, but top heavy minimum applies to entire year compensation.

This could be because the type of compensation is defined for safe harbor purposes more restrictively than it is required to be for top heavy minimum purposes.

[Lou S.]

The 3% safe harbor counts towards the top heavy required minimum contribution, but might not satisfy the top heavy required minimum entirely.

This could be because you may have employees that are not key employees (416i) and thus entitled to the top heavy minimum although they are HCEs.

This could be because you define compensation for the safe harbor purpose as only from the time of mid-year entry, but top heavy minimum applies to entire year compensation.

This could be because the type of compensation is defined for safe harbor purposes more restrictively than it is required to be for top heavy minimum purposes.

Thanks. I've done a bit more digging since my initial post and I'm still a bit confused. Maybe I didn't state the conditions properly.

In looking at Rev-Rul 2004-13, IRC 416(g)(4)(H) and IRC 401(k)(12) it would appear that if you have a safe-harbor 401(k) plan that gives the safe-harbor contribution to all NHCEs (no NHCE exclusions), but does not give the S-H to any HCE, and that is your only employer contribution for the year, then your plan is deemed "not top-heavy" under IRC 416(g)(4)(H) for that year and you do not have to give the "top up" T-H minimum to the non-key HCEs who are ineligible for the S-H contribuion becuase your plan statifies all requirements of IRC 401(k)(12)©. Assume all notices proper and timely.

Am I reading the code wrong, or is it just wishful thinking on my part trying to save the client from making an addition contribution that they don't want to make?

[John Feldt ERPA CPC QPA]

I believe you are correct. If your plan doesn't have any other employer contributions, then you meet the top heavy exemption - no TH contributions needed.

Tough noogies to the HCEs who are not key. I don't know why they didn't put that phrase in IRC 416(g)(4)(H)....