Top Heavy and Prevailing wage

[Jim Chad]

A 401(k) is TH and has SHMAC and prevailing wage. No discretionary match or discretionary non-elective.  Is 3% TH required?

[CuseFan]

I think PW, as a 401(a) amount, is treated like a discretionary PS and negates any SH TH exemption. This seems a very odd TH situation, do you have a lot of Key EEs and/or they are getting sizeable PW? Providing TH likely means contributing only for non-Key, non-PW who are not contributing (enough) then, right? 

[Lou S.]

The Prevailing Wage contribution will removed your "deemed not Top-Heavy" exemption.

[Bri]

I had a client like this - 

Had a top heavy 401(k) plan with a safe harbor match.  (Imagine HCE owner and spouse, then 50 employees doing no 401k for themselves.)  Then had a huge influx of Davis-Bacon jobs so that they wanted to allocate those amounts as plan contributions.

I suggested those go to a separate plan with no HCEs in it.  401(k) with SHM kept its TH exemption while some of the 50 employees had prevailing wage plan contributions of varying levels.  No other nonelective contributions to either plan.

[Jim Chad]

The two plans will have the exact same ownership.  Do we need to combine the plans for testing for Top Heavy?

[Lou S.]

That would depend on whether or not there are any key employees covered by the second plan.

[401kology]

On 9/7/2022 at 1:07 PM, CuseFan said:

I think PW, as a 401(a) amount, is treated like a discretionary PS and negates any SH TH exemption. This seems a very odd TH situation, do you have a lot of Key EEs and/or they are getting sizeable PW? Providing TH likely means contributing only for non-Key, non-PW who are not contributing (enough) then, right? 

Agreed. The PW is treated as a discretionary PS contribution under 401(a) and if the plan is top heavy would require the THM (although the SHM and the PW contributions may both be used to offset the THM)