Top-Heavy Plan

[Guest Pat of RPC]

Client with a 401(k)/Safe Harbor Match/Integrated PS Plan - 7 participants in total. Eligibility is 6 months for 401(k)/Safe Harbor Match. Eligibility is 1 year for PS. Plan is Top Heavy. 4 HCEs and NHCE 1 are eligible for all sources. Two other NHCEs have entered plan for 401(k)/Safe Harbor Match, not eligible for Profit Sharing yet. Of these two employees, NHCE 2 contributes to 401(k) and will receive a Safe Harbor Match, satisfying the Top Heavy requirements for him. NHCE 3 does not contribute to the 401(k), will receive 0% Safe Harbor Match and needs a contribution to satisfy the Top Heavy minimums.

Here is a summary:

HCEs 1, 2, 3, 4 Safe Harbor Match =3%, PS >6%

NHCE 1 Safe Harbor Match =3%, PS =6%

NHCE 2 Safe Harbor Match =3%, PS =0% Not eligible for PS

NHCE 3 Safe Harbor Match =0%, PS =0% Not eligible for PS

My thoughts are that NHCE 3 could receive a 3% PS contribution to satisfy the Top Heavy requirements. Could this be the normal PS contribution or would it have to be a QNEC? If it is a PS contribution would it trigger NHCE 2 to be entitled to it as well? If one or both are entitled to the PS contribution does it have to be the same as NHCE 1 (6%). If it has to be a QNEC, are all 3 NHCEs entitled to it? The goal is to obviously satisfy the Top Heavy minimums with the smallest Employer contribution while also satisfying all legal obligations.

Please advise.

Thank You

[ETA Consulting LLC]

The plan document will typically prescribe the method. It's usually a top-heavy profit sharing that doesn't require immediate vesting. So, it wouldn't have to be a QNEC.

Good Luck!