Top Heavy Minimum - all employees are officers

[WhoLetTheDogsOut]

An employer has 5 employees, all of whom are officers earning over the 416 compensation requirement and none of whom are owners. Therefore, only 3 of them would be key employees due to the limit on number of officers that are treated as key employees (greater of 10% of employees or 3). Those 3 would be determined by ranking them by compensation for the determination year in question and selected the highest paid.

These employees are all equal in decision making & responsibilities regarding the operation of the business. Also, all of them are highly compensated employees.

They have a safe harbor 401k and are exempt from the top heavy requirements. However, if they wanted to allow after-tax employee contributions, the would lose that exemption. If any of the employees made such a contribution, it appears the two non-key employees would be required to receive a top heavy minimum.

Unless my analysis is wrong, this is a crazy result that would preclude the employees from making such after-tax contributions without requiring a top heavy minimum for the two non-key employees.

Anyone disagree or have any comments?

Thanks.

[Lou S.]

Are the SH match or SH non-elective?

They could also have keys receive the TH minimum and everyone would get 3%.

But yes your analysis seems correct on the after tax issue.