Rollover to Safe Harbor 401(k) Plan (Does this Blow the Top-Heavy Exemption?)

[Yesrod5]

One of the advantages of a safe harbor 401(k) plan is the exemption from top-heavy contribution requirements. Does a rollover contribution to a safe harbor plan blow the top-heavy exemption?

Section 416(g)(4)(H) says that the term "top-heavy plan" does not include a plan that consists solely of elective deferrals and safe harbor contributions. Certainly Section 416(g)(4)(H) could not be read so literally as to mean that a rollover to a safe harbor plan would blow the exemption from top-heavy requirements. Or could it?

I have talked with a few TPAs about this question. All have said that they see rollovers to safe harbor plans all the time and do not believe receipt of a rollover blows the top-heavy exemption. Comments were also made to the effect that the reference to "solely" in the statute is understood to be referring to "employer contributions consisting solely of elective deferrals and safe harbor contributions" - and not to rollovers.

I realize that some might think this a moot point inasmuch as the safe harbor contributions can be applied against any top-heavy contribution requirement, but there are some situations where it is an important issue.

I would be interested in any thoughts on this topic.

[BG5150]

Is a rollover really a "contribution"? It doesn't count toward 415. It's not tested anywhere.

[ETA Consulting LLC]

I'm with BG5150 on this one. It is not conceivable that a rollover would be considered a contribution for this purpose. Heck, you don't even have to be an eligible employee in order to roll funds into the plan. The rollover account, itself, is not even counted in the Top Heavy Test.

Your question, however, is a good one. I have having the same issue with employee after-tax (which appears to void the exemption from Top Heavy).

Good Luck!

[BG5150]

The rollover account, itself, is not even counted in the Top Heavy Test.

Sometimes they do--rollovers from related plans.

[Yesrod5]

BG5150 and ERISAtoolkit.com,

Thank you for your comments. I believe we all share the same opinion, yet I still remain a bit concerned about 416(g)(4)(H)'s language that to be exempt from the top-heavy requirements the plan needs to "consist solely of" elective deferrals and safe harbor contributions. Even if a rollover is not a "contribution," it's still in the plan (and a literal reading of the statute would lead one to conclude that in such a case the plan does not consist solely of elective deferrals and safe harbor contributions).

[BG5150]

I'd rest soundly telling one of my clients that a plan isn't TH if they are only making the SH Match but had a rollover or two for the year.

The examples of when a plan loses that exemption all relate to ER discretionary and forfeitures and when the SH match turns out to be non-ACP SH. I know that's not perfect reasoning, but it seems to show where the govn't thinking is on this.

[Yesrod5]

BG5150,

I agree. Your supposition is supported - I think - by the fact that the rollover issue wasn't addressed in the primary IRS pronouncment on the "solely" issue (i.e., Rev. Rul. 2004-13 - which addressed profit sharing contributions (or the lack thereof even if such were permissible) and allocation of forfeitures)

P.S. I think many traffic engineers are beginning to agree with your mantra that "three rights make a left"

[BG5150]

P.S. I think many traffic engineers are beginning to agree with your mantra that "three rights make a left"

UPS Stopped making left turns and making 3 rights, saving a lot of money and gas:

http://www.pressroom.ups.com/Fact+Sheets/Saving+Fuel%3A+UPS+Saves+Fuel+and+Reduces+Emissions+the+%22Right%22+Way+by+Avoiding+Left+Turns

[ESOP Guy]

P.S. I think many traffic engineers are beginning to agree with your mantra that "three rights make a left"

UPS Stopped making left turns and making 3 rights, saving a lot of money and gas:

http://www.pressroom.ups.com/Fact+Sheets/Saving+Fuel%3A+UPS+Saves+Fuel+and+Reduces+Emissions+the+%22Right%22+Way+by+Avoiding+Left+Turns

Also subject of a Mythbusters episode:

http://dsc.discovery.com/tv-shows/mythbusters/videos/right-turn-only-minimyth.htm

[GMK]

And so much better than the poorly designed (narrow lane, small radius, tight corners) round-abouts that keep springing up around here.

It was better when people thought octagonal signs mean "Yield" ... well, yah, they still think that, but it's not like the unpredictable behavior in a little round-about.

And it's too cold too soon. OK, rant over.

edit: Thanks, BG, for your post #6. That helps.