Quick eligibility for deferral, 1 year for safe harbor match - top heavy issue?

Plan has 3-month wait for deferrals and 12-month for safe harbor match plus semi-annual entry-dates.  I realize the <1 year deferrals would need to be ADP tested but that is not an issue since can use the statutory exclusion, plus there are never any HCEs in that group.  No other employer contribution is made - no regular match nor profit sharing. 

This plan is not top heavy thankfully but I thought I read something that if this plan were top heavy, the funding-safe-harbor-only top heavy exemption would not apply to those not eligible for the safe harbor match.  Does that sound right?  

Thanks in advance for your comments.

5 minutes ago, Tom said:

This plan is not top heavy thankfully but I thought I read something that if this plan were top heavy, the funding-safe-harbor-only top heavy exemption would not apply to those not eligible for the safe harbor match.  Does that sound right?  

Yes, but not exactly. Since there is a portion of the plan that is not safe harbor (the portion of the plan covering employees with less than 1 year of service), the entire plan loses its top heavy exemption. So all employees are now eligible for the top heavy minimum. The top heavy minimum can be satisfied by the matching contributions, but if you have an employee for example who defers only 2% of their pay and receives a 2% match, the employer would need to make up the additional 1% to get them to the 3% top heavy minimum. All non-key employees who receive no match - whether because they have less than 1 year of service and are not eligible, or because they are eligible but simply do not contribute - would need to receive the entire 3% top heavy minimum as an additional employer contribution, if they are employed on the last day of the year.

It's worth noting that SECURE 2.0 changed the rules a little. Starting in 2024, employees who have not met age 21 and 1 year of service do not have to receive the top heavy minimum. This doesn't entirely fix your situation though, as your plan would still lose its top heavy exemption and still need to provide a top heavy minimum to those employees who have completed a year of service.

Being uber picky:  TH minimum is only 3% when the highest Key allocation is 3% or more.

10 hours ago, C. B. Zeller said:

 

It's worth noting that SECURE 2.0 changed the rules a little. Starting in 2024, employees who have not met age 21 and 1 year of service do not have to receive the top heavy minimum. This doesn't entirely fix your situation though, as your plan would still lose its top heavy exemption and still need to provide a top heavy minimum to those employees who have completed a year of service.

Employees who will be eligible in 2024 because of the LTPT rules are excluded from the top heavy minimum requirement.  If a plan's eligibility is something less than 1 year of service, age 21, are those employees now also excluded for top heavy minimum purposes?  For example, a plan has a 30 day employment requirement for participation.  The LTPT rule isn't going to affect this plan because essentially all employees are going to meet the 30 day requirement.  Are you saying that the employees who wouldn't have met a year of service don't need a top heavy minimum?

Yes, exactly. Section 310 of SECURE 2.0 added a new paragraph to IRC 416 which says that employees who have not met the minimum age and service requirements of IRC 410(a) are not considered when determining if a DC plan satisfies the top heavy minimum. 

30 minutes ago, C. B. Zeller said:

Yes, exactly. Section 310 of SECURE 2.0 added a new paragraph to IRC 416 which says that employees who have not met the minimum age and service requirements of IRC 410(a) are not considered when determining if a DC plan satisfies the top heavy minimum. 

Thank you!  Wow, so if we've been giving top heavy minimum contributions to the participants that met the plan's 90 day eligibility requirement, we no longer have to give them a top heavy minimum starting in 2024 (for those under 1 year of svc, age 21)?

That's right.