Cross Tested SH Match plan

[Gilmore]

We have a safe harbor plan using the basic safe harbor match formula. Plan is top heavy.

The plan is considering amending for 2013 to allow the discretionary non-elective contribution to be allocated putting each employee into their own class.

Assume Participant A defers 5% and receives a 4% safe harbor match.

Assume Participant B does not defer.

Participants A and B are NHCEs. Each meet the allocation requirements for the non-elective contribution, and assume the employer wants to give $0 to each in the non-elective allocation.

Since the plan is top heavy, each must receive a top heavy minimum.

Am I correct in that:

Participant A's top heavy minimum is satisfied with the 4% safe harbor match, does not benefit under the non-elective, and thus is not eligible to receive the gateway?

Participant B must receive the 3% top heavy minimum and thus must also receive the gateway?

If that is the case, then I am assuming the employer could opt to provide $0 non-elective to any participant who receives at least 3% match, and would not need to provide additional gateway, assuming coverage and non-discrimination passes?

Thank you for your assistance.

[Tom Poje]

this also assumes the document indicates match can be used for top heavy.

arguably this is possible. internally when the partipants get together for their cigarette break and one says "cool. I received a 5% profit sharing, what did you get"

and the other says nothing, grumbling under his breath "I only received a 4% match, what's up with that"

but yes, becuase of the way the regs currently read that would be possible.

remember, for coverage (not nondiscrim) 1.410(b)-4(b) Reasonable classification test....an enumeration by name or other specific criteria having substantially the same effect as enumeration by name is NOT considered reasonable.

so you have to pass coverage using the ratio percentage test

[Gilmore]

All good points. Thank you very much for your confirmation.

[pmacduff]

I actually have a plan like this; we handled just as you describe. That plan went through an IRS audit and all was well.

[Gilmore]

Thank you Mac, that is good to know.

One additional question...

Let's assume the salary deferral/safe harbor portion of the plan provides for a 3 month wait, but we amend the profit sharing to provide for a 1 year wait. A participant that is not yet eligible for the profit sharing may be required to receive a top heavy contribution. Assuming we are not using statutory exclusions for testing the profit sharing coverage, then the participant would need to get a top heavy minimum, and then also be bumped up to the gateway, correct? If that is correct, are those contributions used in the 401(a) testing, or are those contributions just "wasted" for purposes of 401(a) since the participant is not technically eligible for that portion of the plan?

Thanks again.

[Tom Poje]

you use all nonelective contributions in the a(4) test.

this would be no different than adding a corrective amendment to allocate additional amounts to the NHCE.

[Gilmore]

Thanks again.