Safe Harbor Match & NEC to A group of NHCE, 3% SH NEC & A group of HCE Excluded, Cross -Test & TH exemption

[AdKu]

Scenario 1

The plan is a basic safe harbor matching plan where employees are also grouped in classes for profit sharing purposes.

If only one class of the NHCE receive profit sharing contribution,

does this trigger Top Heavy test or any other test at all (except 410(b))?

due to the fact other NHCE classes didn’t receive any profit sharing contribution?

Scenario 2

The plan is a 3% safe harbor NEC plan where employees are also grouped in classes for profit sharing purposes.

If only one class of the HCE are excluded from getting the 3% Safe Harbor,

does this trigger Top Heavy test or any other test at all (except 410(b))?

assuming no other contribution except deferrals and 3% Safe Harbor

[John Feldt ERPA CPC QPA]

Scenario 1.

If the only allocations are deferrals and safe harbor, then the plan is exempt from top heavy for that plan year. If any other amount is allocated in the plan, even if from a forfeiture, you must do a top heavy test to determine if that plan year is top heavy. If it is top heavy, they need to provide any top heavy minimums and apply the top heavy vesting schedule.

If no HCEs receive any nonelective allocations, such as profit sharing, then you will not need to run a 401(a)(4) test for the nonelective allocations.

You don't have to test for discrimination among NHCEs, you only do that for testing discrimination in favor of HCEs. So if the owner's sibling is a NHCE, they can get a large profit sharing allocation and all of the other NHCEs can receive zero profit sharing, but just be aware that the PS amount will show up on the 5500 and the SAR.

Scenario 2

Some or all HCEs can be excluded from safe harbor. Some of those HCEs might not be key employees. Regardless, if the plan only allocates deferrals and safe harbor, the plan is exempt from top heavy for that plan year.

[AdKu]

John,

Many thanks!

If I understand your answer for Scenario 1 correctly,

it doesn't matter who gets the profit sharing allocation (in my case it was NHCEs) and it source (whether new money or forfeiture money) for any safe harbor plan to lose its Top Heavy exemption.

[John Feldt ERPA CPC QPA]

Correct, but there is one additional exception that might be useful here. If, in addition to the allocation of deferrals and safe harbor, there is an allocation toward an additional match - and that match is not a safe harbor match but meets the requirements to be ACP-free, then you are still exempt from top heavy.

For example, an additional like this would be ACP-free: a fixed-required additional match that is uniform, its match rate does not climb as deferral rates increase, ignores deferrals over 6% of pay, and has no allocation conditions. This match can have a vesting schedule.

Another example, a discretionary additional that is uniform, its match rate does not climb as deferral rates increase, ignores deferrals over 6% of pay, has no allocation conditions, and overall is not more than 4% of compensation. This match can have a vesting schedule.