Top Heavy Minimum

My plan is top heavy for 2024 plan year. Top heavy minimum is required for current year.

However in the mid of the current plan year i.e., on 06/01/2024, plan amended to opt for SH Match contribution (My understanding is that plan is subjected to both ADP & ACP because mid year inclusion of SH contribution). In this case, I think TH minimum is required for non key employees.

There is no compensation exclusion in the plan.

1. If there is DOP comp is excluded, how to handle this scenario.

2. If the plan is opted SH provision, it is exempted from TH minimum if it is had SH at the end of the plan year.

3. TH Minimum is exempted whether plan having either SH Match or SH Non elective with no other Employer contribution.

I'm curious to here any other points or opinions. 

If there, it is helpful by providing provision code or IRS documents which it is explaining.

New or existing? You can't adopt a match after the year starts (to an existing 401(k) plan) and be safe harbor for that year. You can start a safe harbor match or convert a profit sharing mid year (as long as you allow for at least 3 months deferral).

If it was an existing 401(k) you could have added a Non-elective for 2024 but not a match and been considered safe harbor for 2024.

The TH minimum is 3% (assuming at least 1 key employee got an allocation rate of 3% or more which includes their 401(k) contribution) of 415 compensation for the Plan year, entry dates don't matter and goes to all eligible not just those making 401(k).

The TH minimum "may" be reduced by any matching contributions an employee received IF the document allows. read the plan document for the answer to this question.

The TH minimum "may" be limited to eligible non-keys IF your document allows. read the plan document for the answer to this question.

The relevant IRS code section is 416 and the regulations there under.

For 2025 assuming you did everything right with notices and are still matching safe harbor, you will deemed not top-heavy for 2025 if all you have is deferral and safe harbor match you are good to go, no additional top-heavy minimum.

You can ask your TPA help explain your options for 2024 but you may be stuck with a 3% contribution for everyone eligible based on full year pay. That would be your maximum exposure but it may be lower if you can offset for matching contributions received and exclude key-employees.

And keep in mind that nonkey employees who fall into the “otherwise excludable employee” group in 2024 (OEEs) are not required to receive the top-heavy minimum for 2024, assuming that’s what the plan sponsor will be adopting in their good-faith interim amendment. This is new starting in 2024.

Lou is correct that you can’t add a safe harbor match mid-year to a plan that already allows deferrals. Is that what actually happened with your plan?

14 hours ago, John Feldt ERPA CPC QPA said:

And keep in mind that nonkey employees who fall into the “otherwise excludable employee” group in 2024 (OEEs) are not required to receive the top-heavy minimum for 2024, assuming that’s what the plan sponsor will be adopting in their good-faith interim amendment. This is new starting in 2024.

Lou is correct that you can’t add a safe harbor match mid-year to a plan that already allows deferrals. Is that what actually happened with your plan?

Yes. Client amendment the adoption to include SH Match to avoid TH Minimum.

But, at the end it is required to provide TH Minimum contribution.

At this point, is there any way to avoid TH Minimum in other allowable way.

31 minutes ago, TH 401k said:

Yes. Client amendment the adoption to include SH Match to avoid TH Minimum.

 

The client got bad advice on this course of action, at least with respect to 2024 because they are not considered a safe harbor for 2024, they just have a safe harbor matching formula for 2024 with the required matching contribution without any of the real safer harbor benefits for 2024. That is they are not deemed not-TH, they are subject to ADP testing and they are subject to ACP testing.