justatester Posted September 21, 2021 Posted September 21, 2021 A plan is a SH match plan. However, they decide to allow for after-tax contributions. The plan is now subject to the ACP testing. I believe the test can be conducted with or without the SH match included. The question I have is...The plan is also top heavy. The plan "loses" the top heavy exemption and is now required to fund the top heavy minimum. Is this still true even if no participants actually make after-tax contributions? My gut says yes they are required to fund because the plan is not considered "solely" safe harbor. Thoughts?
C. B. Zeller Posted September 21, 2021 Posted September 21, 2021 The plan does not lose the top heavy exemption unless any contributions other than deferrals or safe harbor contributions are actually made for the plan year. For example, a plan can permit profit sharing contributions, but if none are actually made, it can still use the top heavy exemption. In your case, if no after-tax contributions are made for a given year, then the top heavy minimum would not apply. ugueth and Luke Bailey 2 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co
MWeddell Posted September 21, 2021 Posted September 21, 2021 Code Section 416(g)(4)(H) is ambiguous to me. However, Rev. Ruling 2004-13, especially Example 1, makes clear that one interprets the top-heavy exclusion based on whether other contributions (including forfeitures allocated as contributions) are made. So I agree with C.B. Zeller that the plan does not lose the top-heavy exclusion if it permits employee after-tax contributions but none were made. Luke Bailey 1
justatester Posted September 21, 2021 Author Posted September 21, 2021 Good thoughts....Another question... SH plan: Pretax deferrals have immediate eligibility, SH Match uses 1 yos exclusion. Plan is top heavy. If all employees are eligible for the SH match, (there are no employees with less than 1 YOS) does the plan maintain the top heavy exemption?
Mr Bagwell Posted September 21, 2021 Posted September 21, 2021 Yes. But when a new employee is hired, the new employee will need a top heavy contribution because the plan is top heavy. Talk about a time sucking plan. Bill Presson and Eve Sav 2
BG5150 Posted September 21, 2021 Posted September 21, 2021 3 hours ago, Mr Bagwell said: Yes. But when a new employee is hired, the new employee will need a top heavy contribution because the plan is top heavy. I don't understand this. If the new EEs get a TH contribution, then the plan is no longer "solely" funded with deferrals and SH. So TH is due to everyone. What am I missing? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
Mr Bagwell Posted September 21, 2021 Posted September 21, 2021 1 hour ago, BG5150 said: I don't understand this. If the new EEs get a TH contribution, then the plan is no longer "solely" funded with deferrals and SH. So TH is due to everyone. What am I missing? Sorry, my bad. Yes, I agree, for a plan that has dual eligibility and is "solely" funded with deferrals and SH, all good. Thanks for the correction BG!
BG5150 Posted September 21, 2021 Posted September 21, 2021 15 minutes ago, Mr Bagwell said: Sorry, my bad. Yes, I agree, for a plan that has dual eligibility and is "solely" funded with deferrals and SH, all good. Thanks for the correction BG! I was thinking the other way. Your first post intimated that only the new participant needs a top heavy contribution; you didn't say "all" participants. Rev Rul 2004-13 specifically addressed dual eligibility. The plan loses TH exception if there is dual eligibility for SH match. See Situation 4. rr-04-13.pdf Luke Bailey and C. B. Zeller 2 QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
Mr Bagwell Posted September 22, 2021 Posted September 22, 2021 On 9/21/2021 at 8:40 AM, justatester said: Good thoughts....Another question... SH plan: Pretax deferrals have immediate eligibility, SH Match uses 1 yos exclusion. Plan is top heavy. If all employees are eligible for the SH match, (there are no employees with less than 1 YOS) does the plan maintain the top heavy exemption? Yes, the plan maintains the top heavy exemption for the year. If there is a new employee hired and plan has SH Match: The employee will need the top-heavy contribution if still employed at the end of the year because the plan would not get the top-heavy exemption.
Mr Bagwell Posted September 22, 2021 Posted September 22, 2021 19 hours ago, BG5150 said: I was thinking the other way. Your first post intimated that only the new participant needs a top heavy contribution; you didn't say "all" participants. Rev Rul 2004-13 specifically addressed dual eligibility. The plan loses TH exception if there is dual eligibility for SH match. See Situation 4. rr-04-13.pdf 56.73 kB · 9 downloads I agree with you that "all" participants would need to satisfy the top heavy. (Based on plan doc, of course)
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now