Safe Harbor Plan / Top Heavy Question

[Guest MikeD]

I know this has been asked and answered, but I can't find it...

Safe Harbor Nonelective Plan

Plan Allows Discretionary Matching Contributions

2 Entry Dates

Comp Excludes Pay Before Entry In the Plan

The Plan is Allocating the Nonelective Safe Harbor 3% and a Discretionary Match (50% of 5%)

For the employees who entered mid-year, would they get 3% of their pay from the entry date? Or is the plan required to allocate 3% of whole year pay to satisfy Top Heavy?

It seems to me that the only contributions being made are Safe Harbor and a discretionary match that satisfies the safe harbor, which should (if I'm not mistaken) give them a pass on the top heavy contribution, but our software is forcing a 3% top heavy on whole year pay for those who entered mid year.

Any help?

[Tom Poje]

there is at least one IRS official who holds that you would have to use full year comp, but this was only an informal comment made at one of the ASPPA Conferences. Until (or unless) the IRS comes out with something more specific, the current belief is if there are no other contributions (forfeitures or non electives besides the safe harbor) the plan is simply not top heavy.

so whatever software is being used, there should be some way of either indicating the plan is not top heavy for the year, or that the minimum is 0% or some other work around.

[rcline46]

Top Heavy is avoided ONLY IF the contributions are deferrals and the SH contribution. YOu have an elective match, so TH is triggered. Your software is correct.

[Guest MikeD]

there is at least one IRS official who holds that you would have to use full year comp, but this was only an informal comment made at one of the ASPPA Conferences. Until (or unless) the IRS comes out with something more specific, the current belief is if there are no other contributions (forfeitures or non electives besides the safe harbor) the plan is simply not top heavy.

so whatever software is being used, there should be some way of either indicating the plan is not top heavy for the year, or that the minimum is 0% or some other work around.

Thanks. That is what I was thinking. I knew of the ASPPA Q&A comment, but couldn't find anything that said that this was the definitive view of the IRS.

I was thinking this is similar to the "triple match" scenario that is often discussed at the Corbel conferences (where you have a safe harbor match, discretionary match and fixed match that all satisfy the safe harbor and that does not trigger the top heavy).

I do have a work around, so I can make the allocation work...just wondering if I was missing something.

[Laura Harrington]

there is at least one IRS official who holds that you would have to use full year comp, but this was only an informal comment made at one of the ASPPA Conferences. Until (or unless) the IRS comes out with something more specific, the current belief is if there are no other contributions (forfeitures or non electives besides the safe harbor) the plan is simply not top heavy.

so whatever software is being used, there should be some way of either indicating the plan is not top heavy for the year, or that the minimum is 0% or some other work around.

I disagree. You can have discretionary match in a safe harbor plan and still meet the top heavy exemption as long as the match satisfies the requirements for meeting the ACP safe harbor.

IRC 416(g)(4)(H):

NONDISCRIMINATION REQUIREMENTS. --The term "top-heavy plan" shall not include a plan which consists solely of --

416(g)(4)(H)(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13), and

416(g)(4)(H)(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).

401(m)(11) and 401(m)(12) refer to the requirements for satisfying the ACP safe harbor.

[R. Butler]

I agree with Laura Harrington. As long as the discretionary match satisfies the ACP safe harbor you should get the top heavy pass.

[rcline46]

Ok, what are the rules for receiving the discretionary match, and the vesting on the match? That is missing from the OP.