Corrective QNEC's for Top Heavy Safe Harbor Plans

[Leopurrd-401k]

hi! If a SH plan has a missed deferral opportunity and requires a corrective QNEC - does that then remove the top heavy exemption? I'm curious and can't really find anything that says yes or no on this. I'm leaning towards YES because regs state that it's top heavy if it consists of anything besides deferral and the safe harbor contribution; BUT would it really cause a failure if you correct your plan? I can't wrap my head around this. 

 

Thank you!

[pmacduff]

I see one post from back in March of 2015 in the "Correction of Plan Defects" board that seems to lean toward saying it wouldn't remove the TH exemption. 

I'll see if I can come back and edit this post and insert the link....

https://benefitslink.com/boards/index.php?/topic/57083-401k-with-safe-harbor-match-makes-qnec-for-missed-defferal-opportunity/

 

[Leopurrd-401k]

Thank you!

[pmacduff]

ok - try the link in my message -

[Paul I]

There does not appear to be any guidance issued after 2015 that points to a loss of the top heavy exemption due to a QNEC for correcting a missed deferral opportunity.

There are instances where it appears the IRS treats QNECs as Nonelective Employer Contributions, and this leads to the confusion.  The classic example of taking a hard positions on this is a corrective QNEC for an MDO for an HCE in a plan that only allows deferrals.  If treating a QNEC as a NEC was a hard rule, then the corrective QNEC would make the plan fail coverage (since only an HCE received the NEC).

The reasonable path forward absent IRS guidance that some practitioners have put forward is to treat the corrective QNEC the same as the source upon which the corrective QNEC is based.  If it corrects a deferral, it would be treated like a deferral.  If it correct a match, it would be treated like a match.

I can hear Gilda Radner as Roseanne Roseannadanna saying "never mind".