Top Heavy minimum for mid year entrants in a Safe Harbor 401(k).

[R. Butler]

We have a safe harbor 401(k) plan utilizing the 3% nonelective contribution. The plan has quarterly entry dates and includes only wages earned for the portion of the year in which you were a participant.

It is my understanding that the 3% contribution can be used to satisfy top heavy. It is also my understanding that the top heavy minimum contribution must be based on compensation for the full plan year. If I have mid-year entrants, do they get the safe harbor contribution for the portion of the year in which they were a participant and a 3% subject to vesting contribution for the portion of the year prior to participation?

[Kristina]

They will get the 3% safe harbor on the participation compensation plus 3% top heavy contribution on their pre-participation compensation which would be subject to vesting. Their total allocation is 3% of their total compensation for the year.

[Richard Anderson]

I see no reason that the pre participation TH contribution couldn't have vesting attached to it, unless your document says otherwise.

[rcline46]

See similar thread from GMEDLEY for differing points of view.

[R. Butler]

Thanks rcline46. I read the thread; do you think that thread says something different or maybe just answers a different question? Although the intial question does state that the plan is top heavy, none of the answers address the issue. They merely state the basic rule that you can exclude comp prior to participation for the 3% safe harbor contribution. That is correct. The additional contribution I ask about isn't the safe harbor contrib., but whether an additional 3% subject to vesting contrib. is required for the portion of the year the new entratns were not participants.

Upon further research I tend to agree with Richard and Kristina. Notice 98-52 specifically states the the 3% can be counted toward the minimum contribution requirement for top heavy plans. It does not state it satisifies top heavy by itself.

[AndyH]

I agree it's 3% for the whole year, part fully vested and part subject to whatever the top heavy vesting schedule is.