TH minimum required?

[RatherBeGolfing]

Top Heavy SH 401k plan with basic match and cross tested PS (everyone in their own group)

• 2 HCE/Key 3 NHCEs (only 2/3 NHCEs have met PS eligibility of 1YOS+A21)
• Eligibility for 401k/SH is 3 months, all EEs have met this eligibility.

Plan Sponsor wants to provide PS to just one participant, a NHCE.

The way I'm looking at this is that PS to the NHCE means the plan no longer consists solely of deferral and SH, so TH minimums would apply if the plan is TH.  The 401k and SH for the HCE/Key is around 20% of compensation.  One NHCE received a SH match of roughly 1.9%  I think that NHCE needs a TH minimum to get to 3% of comp.  

I'm getting some pushback because the Key's only received an allocation of 401(k) and SH, and the only participant with a non elective contribution was a non-key.

I cannot find a reference to TH exemption when there is an allocation other than 401k/SH, but the allocation is only to non-Key EEs...  

Does anyone agree that TH minimum is not required because the key did not share in the PS allocation, and can you provide a citation or reference to this point?  I'm also open to arguments for TH minimum of course

 

[Mr Bagwell]

13 minutes ago, RatherBeGolfing said:

Plan Sponsor wants to provide PS to just one participant, a NHCE.

All this scenario for a PS to the only NHCE that could get a PS?   Wow!!

[Mr Bagwell]

My brain is telling me that the PS to anyone is requiring that TH rules to kick in.  Therefore, the non-KEY employees are going to need 3% from the Employer.

17 minutes ago, RatherBeGolfing said:

I cannot find a reference to TH exemption when there is an allocation other than 401k/SH, but the allocation is only to non-Key EEs...

Because I don't think there is such an exemption.  

Just my quick two cents.....

[C. B. Zeller]

Top heavy minimum is required. Rev. rul. 2004-13 example 2.

Now if the employer had a separate profit sharing plan, they could make the contribution to that plan without triggering the top heavy minimum, because the first plan would still consist solely of deferrals and safe harbor contributions, and in the second plan no key employee gets a contribution. It seems silly, but that's the way the top heavy rules are written/interpreted...

[RatherBeGolfing]

Thanks all! 

I thought I was losing it this morning.  I have requested that they provide support for their position so it will be interesting to see...

[pmacduff]

I understood the safe harbor/top heavy rules to state that if there is ANY Employer non-elective contribution in a safe harbor match plan that the top heavy rules apply. 

If I recall you could even be just reallocating forfeitures and that would cause top heavy rules to kick in for a SH Plan.

 

[RatherBeGolfing]

2 minutes ago, pmacduff said:

I understood the safe harbor/top heavy rules to state that if there is ANY Employer non-elective contribution in a safe harbor match plan that the top heavy rules apply. 

If I recall you could even be just reallocating forfeitures and that would cause top heavy rules to kick in for a SH Plan.

 

You are correct.  

They have now backed down and accepted that their position was incorrect.

[Below Ground]

A few years back I ran into this exact same problem.  My research found that Mr. C.B. Zeller is 100% correct.  The TH Minimum for Non-Key is required.  

On 9/13/2023 at 1:06 PM, C. B. Zeller said:

Top heavy minimum is required. Rev. rul. 2004-13 example 2.

Now if the employer had a separate profit sharing plan, they could make the contribution to that plan without triggering the top heavy minimum, because the first plan would still consist solely of deferrals and safe harbor contributions, and in the second plan no key employee gets a contribution. It seems silly, but that's the way the top heavy rules are written/interpreted...