Safe Harbor 401(k) Plan & Top Heavy

[Below Ground]

Plan is Safe Harbor 401(k) Plan that only does Safe Harbor Contributions. When computed, Plan does have Top Heavy Ratio of over 60%. Since only Safe Harbor Contributions are used, Top Heavy would not normally apply. However, a person terminates and forfeits profit sharing monies that need to be reallocated under profit sharing allocation formula. (They did use profit sharing allocations in prior years.) This forfeiture reallocation would provide everyone employed on last day with (equally) a little under 1% of pay. Does the employer need to kick in monies necessary to give everyone 3% under profit sharing, since Keys are getting over 3% from Deferrals and Safe Harbor Match? (Not all people are deferring so Matching can't alone satisfy the Minimum.)

[Guest SWH]

Based on what I've read, you no longer have the top heavy exemption, so you would have to meet the Top Heavy minimum.

As an alternative, if you used the forfeitures to reduce the safe harbor contribution, then you would be okay. Depends on what your document says about forfeitures. Does it specify that they must be reallocated? Or can they be used to reduce employer contributions?

If the forfeiture has to be allocated, then I think that you only have to give to those who don't have at least a 3% safe harbor match.

[BG5150]

What kind of Safe Harbor contribution? Match or non-elective? If it's 3% non-elective, you might be okay. Just make sure to true-up any new entrants to take into account full year comp.

If it is a match, you can count those towards top heavy. You would just have to true-everyone up to 3% of full year comp.

[Below Ground]

Thank you both for your replies.

BG - Safe Harbor Match is used. See boldfaced text in OP. I should have included match in the first sentence for better clarity. Sorry.

SWH - I agree with your conclusion that 3% is needed. (Exemption lost so all rules apply.) Luckily, the document allows Forfeitures to be used for any "discretionary allocation". We used the monies under a discretionary Match that complies with ACP Safe Harbor Rules; thereby, avoiding the Top Heavy Minimum.

While I was fairly confident of the answer (as given by SWH), I had this bit of doubt on whether the TH Minimum is computed looking at all allocations to Keys (including Deferral and Safe Harbor Match), or just the "non-safe harbor allocations". When I research this I wasn't finding any "clear" answer to this question, and that further raised my curiousity level.

Anyway, thanks for your input!