Top Heavy and Safe Harbor match question

[Lori H]

small plan that is top heavy contributes a safe harbor match and a profit sharing contribution. Document states p.s. is allocated based on a comp percentage. however, system is allocating profit sharing giving each eligible participant a p.s. contribution of 1.13%. Is this acceptable? The plan has $36898.22 of it's $90,000 employer contribution after a $53101.78 safe harbor match.

[Tom Poje]

if everyone deferred at least 3%, and therefore received at least 3% match, then that would be acceptable (assuming match can be used to satisfy top heavy)

well now, if you are using Relius it depends on how things are checked.

1. does the system even know the plan is top heavy for the year

2. was Top heavy checked on the transaction

3. what is checked for 'match excluded from top heavy'

4. what is checked for top heavy first or top heavy skim

(I tired of people forgetting to run the top heavy report, so my 'plan spec' report prints a great big message "Top Heavy not processed " if you forget. even I forget from time to time, so it comes in handy)

[Lori H]

thanks for your response.

some participants do not defer.

we use ft. william and it is aware that the plan is TH.

I just want to ensure that the p.s. allocation is being done correctly (uniform percentage) which in this case is 1.4% of pay as opposed to the comp. % in the document. And since the 1.4% is less than 3% top heavy minimum, despite a SH match, that the sponsor does not need to fund the full 3%.

[Tom Poje]

if a ps is made, then top heavy free is lost

there is nothing to stop you from 1st providing 3% to those who didn't defer to cover top heavy, then allocate the rest to everyone else.

Or another way to look at it,

you allocate 1.4% to everyone, but some people didn't receive enough for top heavy.

so you 'skim' enough from everyone to provide top heavy to the people that need it.

hopefully there isn't an HCE non key in the group.

[Kevin C]

If the plan uses compensation from date of entry, you'll also want to be careful with the mid-year entrants. Their TH minimum is 3% of full year comp.