Top Heavy/Safe Harbor match/Profit Sharing

[Guest Diane DuFresne]

Have a top heavy, safe harbor match, 401(k) plan. Employer is also making an integrated profit sharing contribution for 2011. We have one employee who did not defer, thus did not receive the safe harbor match. Key ee's deferring above 3%. Does this individual get the 3% top heavy contribution plus the regular profit sharing contribution? We are using the "top heavy first" method in Relius. The plan document implies in the Employer Contributions section, under special rules for integrated plans, that the PS contribution must first be allocated to top heavy, then the 3% for integration, then an addtional 2.7% to wrap up the integration, then any remaining, comp to comp. As a result, this individual, who chose not to defer, gets the 3% top heavy plus the profit sharing contribution all other NHEs got? Make sense?

[PensionPro]

The top heavy and/or PS contribution is in no way related to an employee actually making deferrals. If the individual is eligible for the PS contribution he or she needs to receive the PS contribution. It appears that the method of allocating the contribution takes care of the top heavy minimum in the first step.

[ETA Consulting LLC]

Assuming the individual has met the accrual requirements for receiving a "Profit Sharing Contribution" then he'd receive the greater of two amounts: 1) the profit sharing contribution allocated under the plan's formula; or 2) the 3% TH minimum.

In any instance, he's going to get at least 3% (because the TH minimum is invoked as soon as the plan falls outside the 401(k) Safe Harbor exemption from Top Heavy).

The question here is does the participant meet the accrual requirements for receiving a Regular Profit Sharing. If not, then he receives the 3% TH minimum; and you're done.

If so, then he gets the Profit Sharing. In the event that Profit Sharing falls below 3%, then he receives an additional amount to get him up to 3%; despite what anyone else under the plan receives.

Good Luck!

Sorry PensionPro, I didn't see your post; we were typing at the same time.

[Tom Poje]

well, not sure what results you will get, since there are other check boxes, such as "match excluded from minimum"

let suppose the only contribution that was provided was 3% of total comp.

I would expect everyone to receive 3% and nothing integrated.

rather than perhaps 2% base plue 2% excess

if the contribution was increased by $1000 I would expect all of that to go to an integrated piece up to 3%.

so you would have 3% base plus x% integrated.

(by the way, special kudos for running top heavy. I could never get people to process that every year, or they would forget. so now my

plan spec report produces a great big warning message that tells you if you didn't run top heavy.

[ETA Consulting LLC]

since there are other check boxes, such as "match excluded from minimum"

I'm a fan of flexibility with plan documents, but why would this ever be written into a plan. I cannot imagine a scenario where this would be advantageous to a plan sponsor. It's scary since there are still platforms where Financial Advisors complete the adoption agreements and arbitrarily check boxes since they seldom know what the implications are.

But, point taken