TH & Excluded EE's

[Guest careful1]

A company has two plans: 1. A DB plan that covers the two owners and certain groups of employees while excluding other employee groups but passes coverage and nondiscrimination on a standalone basis, amd 2. A safe harbor 401(k) plan that provides the SH match and $0 PS and covers all employees that meet the 21 & 1 requirement. Since the key employees are in both plans this would be a required aggregation group. My understanding is that the 401(k) plan is deemed not top heavy because of it's safe harbor status. What top heavy benefit if any does an employee get if they are excluded from the DB plan and they do a $0 salary deferral?

[Andy the Actuary]

While this wasn't stated, presumbably the group is TH? What does the 401(k) plan document specify? It would seem that 401(k) would have to provide 3% TH contribution.

[Guest careful1]

Yes, it's TH. I think you are probably right. I can't imagine they can be skipped because the 401(k) plan is deemed to be not TH. That's really what I want to verify. I don't have the DC doc yet.

[SoCalActuary]

You should review this excerpt from IRC 416:

(H) Cash or deferred arrangements using alternative methods of

meeting nondiscrimination requirements

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) or 401(k)(13), and

(ii) matching contributions with respect to which the

requirements of section 401(m)(11) or 401(m)(12)are met.

If, but for this subparagraph, a plan would be treated as a

top-heavy plan because it is a member of an aggregation group

which is a top-heavy group, contributions under the plan may be

taken into account in determining whether any other plan in the

group meets the requirements of subsection ©(2).

You did not describe a plan "which consists SOLELY of "

[Guest careful1]

There will be only the 401(k) deferrals and the 401(m) SH match. The document does not allow any profit sharing but it does allow a discretionary match over the safe harbor match. As long as the sponsor does not utilize the discretionary match do you feel this arrangement meets the requirements for the DC plan to be deemed not top heavy, and therefore the sponsor can avoid giving a contribution to the employees that are excluded from the DB plan and that also do no 401(k) deferral?

[SoCalActuary]

There will be only the 401(k) deferrals and the 401(m) SH match. The document does not allow any profit sharing but it does allow a discretionary match over the safe harbor match. As long as the sponsor does not utilize the discretionary match do you feel this arrangement meets the requirements for the DC plan to be deemed not top heavy, and therefore the sponsor can avoid giving a contribution to the employees that are excluded from the DB plan and that also do no 401(k) deferral?

If any key employee defers under this plan, then you have a top-heavy aggregation group, IMO. If no key employee defers, then you could state that the plan did not benefit any keys and does not have to be aggregated.

[Guest careful1]

Thanks for your help.