Top Heavy Plans Vesting and How to Accommodate.

If a plan has 15 employees 11 of which are considered HCE, what are some amendments that can be made to the plan in order to pass compliance. Should we edit the vesting schedule of HCE employees to include a cliff, make 100% or keep as "NA - Vesting schedule is Top-Heavy Compliant"? Do we also need to add in a safe harbor non-elective contribution in order to be able to make a safe harbor contribution of 3% at year end if necessary? This option states the following: "This amendment only applies to the ADP testing safe harbor under Code section 401(k)(12). If the Plan provides contributions in which the ACP testing safe harbor is necessary, then an advanced notice is required and this amendment may not be used." Can you explain in which cases this amendment should and should not be used? Can you also explain how we can make a 3% contribution at year end and if we need this amendment in order to do so? 

Is the plan top heavy,  failing ADP testing, or both?

Does making an election to use the top-paid group improve your testing results?

You can change a vesting schedule but there are some complex rules to follow and you can't cut anyone's vested percentage below what they have already accrued.

Amending in a 3% safe harbor non elective (on or before November 30 for calendar year plan) will let you pass the ADP testing and most likely top heavy too though there are some exceptions.

You'll still need to pass ACP testing on the match this year but for next year if your match meets the requirements listed in the code and you timely distribute a safe harbor notice to employees (30 days before the start of the year) you are deemed to pass ACP well.

Are you the admin, the sponsor, or a participant?

Thanks Lou.
The Plan would be Top Heavy and failing ADP testing. 
Can you explain what you mean by making an election to use the top paid group improve testing results? 

If this is a new plan what would you suggest for vesting of the top heavy group in order to help with passing the testing? Or will this not effect the testing results? 

What exceptions are there with the top heavy not passing ADP testing?
If we do a 3% non elective distribution will that make us pass both ADP and ACP testing or are there exceptions? 

An election to apply the top paid group would not effect top heavy as it does not change who a key employee is but HCEs are 5% owners and employees who made more than the IRS limit in the prior year. With the TPG election (which would be in the document or an amendment to existing document) you limit HCEs to top 20% of employees who made more than the IRS limit in the prior year so you could potentially change your group of HCEs from 11 employees to as few a 3.

Vesting does have any impact in testing but if the plan is new or on going and is top heavy you need a schedule that statisfies top heavy.

If a plan consists of only deferral, safe harbor contributions and matching contributions that meets the condition listed in the code then the plan is deemed not top heavy. Once you have and employee contributions that are in addition to those, even $1 then you lose the top heavy exemption. But it's rare that the 3% non elective doesn't fulfill the top heavy minimum. Typically it would be if there are non-key HCEs who are excluded from the 3% non elective but the employer decides to make an additional employer contribution.