410(b) testing - Top Heavy min only participants

Hi Everyone, 

I've read through this link 

but its an older one, and I just want to make sure I'm understanding it correctly for a plan's situation. 

Profit Sharing only plan - plan document specifies pro-rata allocation method, so I recognize it is relying on the allocation method safe harbor, rather than general testing, 401a4. 

Plan has a 1,000 hours and last day requirement, and most years there are a few part-time folks who are required to receive only the top heavy minimum. 

The 70% test does pass if those folks are included as benefiting. It does not if they are not counted as benefiting. Based on my reading of the link above - it sounds like I can't include them as benefiting? 

The plan document does not have the 410(b) fail safe language, so if allocation conditions need to be waived for anything other the top heavy min, a corrective amendment will be needed. 

Or, the plan would have to move on to more general testing and see if it passes, if it still doesn't pass, then then aforementioned amendment comes into play. 

Am I understanding this correctly? 

Do you include top heavy min only participants as benefiting in the regular ratio percentage test?

Is the PS contribution more than the 3% TH minimum?

I look at it as,

you're not failing coverage, but rather you're failing nondiscrimination (or, at least, there's still work to be done), if you have less than 70% benefiting with a non-uniform formula but over 70% getting "at least something".

2 hours ago, Lou S. said:

Is the PS contribution more than the 3% TH minimum?

yes, it is more than 3%. I think the others are getting about 7%. 

2 hours ago, Bri said:

I look at it as,

you're not failing coverage, but rather you're failing nondiscrimination (or, at least, there's still work to be done), if you have less than 70% benefiting with a non-uniform formula but over 70% getting "at least something".

that's a helpful way to frame it, thanks. 

Yes then to use an example if you have 1 HCE and 3 NHCs with the HCE and 2 NHCEs are getting 7% and one NHCE getting 3% they all are "benefiting" as they all got actual dollars.

But if you are testing on a contribution basis then anyone getting less than 7% is not benefit for 401(a)(4) and your ratio would be less than 70%.

So you can either test on a benefits basis and see if it passes (assuming you can pass all tests for this), you have fail safe language in the document which will pull in enough people at 7% to get to you to 70%, or if no fail safe an -(11)(g) amendment to pick an chose who gets the extra to get you  to 70%.