Top Heavy - a new wrinkle on an old question

Employer has a safe harbor match plan, top heavy not required.  If they added a profit sharing allocation, they'd be blown and have to provide a 3% NEC. 

Say they had a second plan with an exclusive group of HCE's and HCHE's that passes coverage testing on it's own.  The non-keys in that second plan get at least 3% for TH.

Top heavy rules indicate that each plan needs to satisfy TH, so is the SH match plan still ok?

20 minutes ago, dan.jock said:

Top heavy rules indicate that each plan needs to satisfy TH, so is the SH match plan still ok?

Isn't TH testing on an aggregate basis?

TH Aggregation is only required of all plans that cover at least one key employee.  Because of the last paragraph, this design should work because it is not part of the required aggregation group.  Neat!  PS I assume you meant to say "HCEs and NHCEs" (not HCHEs).

416(g)(4)(H)

(H) Cash or deferred arrangements using alternative methods of meeting nondiscrimination requirements

The term "top-heavy plan" shall not include a plan which consists solely of—

(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13), and

(ii) matching contributions with respect to which the requirements of section 401(m)(11) or 401(m)(12) are met.

If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2).

You also have to aggregate plans that are used to enable a TH plan to satisfy 401(a)(4).  This can mean all plans if a plan needs the ABT.

OP said 2nd plan passes coverage on its own, and the first is SH Match for all.  But good point!

What is your point?  Are you trying to argue that a plan that satisfies coverage gets a free pass as to non-discrimination?

Not at all.  But it also needs to satisfy 415, max deductible, it can't allow contributions from severance, and probably 45 other requirements.  That is to say, stating the plan has to nondiscrimination is stating the obvious.

Edit: AND there is no nonelective in the other plan, so clearly the non-elective will pass nondiscrimination without taking into account the other plan.

Just have to agree to disagree, then.

The mere fact that the non-SH plan constitutes an "exclusive" group means that it is more than just merely possible that coverage is being satisfied with reference not to 70% but to the safe-harbor percentage (50% or lower).  If so, then it is also possible that the ABT is failed unless all plans are considered.  If so, then the non-SH plan satisfies coverage only by including the SH plan in the ABT.  That is enough to make the non-SH plan part of the required aggregation group.

I guess all we disagree is whether passage is implied by the OP.

How do you write the documents to include or exclude the specific HCEs & NHCEs?  Seems like unless you have certain groups, divisions, departments, etc. this could be problematic.  Would also have to satisfy coverage each year, right?

OK, Sorry I didn't mean to check out on this. 

I agree with Mike, that coverage AND NON-DISCRIMINATION need to pass on it's own.  So yes, I am not using the SH match plan at all for ABPT part of the general test.  SH match plan has no keys in there. 

This is the actual life scenario:  Employer has a SH match plan for 2018.  In 2019, he wants to do a DB/DC combo plan for a select group and leave the SH match untouched for the rest of the staff.  If the select group passes 410b and 401a4 on it's own, I think I can do that.

So the next question, Keys in select group have a SH match balance but won't benefit under that plan in 2019.  I think it's blown because 416g2 says we aggregate each plan with a key participant.  not a key benefiting participant. 

So if we set it up that way initially, we are ok, but I can't see a path to conversion.

10 hours ago, dan.jock said:

So yes, I am not using the SH match plan at all for ABPT part of the general test.  SH match plan has no keys in there

You are required to include this in the Average Benefits test for a4 testing.  It's the nondiscriminatory classification portion of the AB Test that needs to be passed by treating the other excluded participants as not benefiting.

10 hours ago, dan.jock said:

If the select group passes 410b and 401a4 on it's own, I think I can do that.

The devil her is in the details.  IF each plan passes at 70% coverage ratio, then you're all good.  But if below 70% and there is no reasonable business classification for the exclusions, then you're out for Average Benefits FOR COVERAGE.  So that's why some have asked "on what basis are you excluding people?"

10 hours ago, dan.jock said:

So the next question, Keys in select group have a SH match balance but won't benefit under that plan in 2019.  I think it's blown because 416g2 says we aggregate each plan with a key participant.  not a key benefiting participant

From 1.416.-1T(1)(b):

All plans maintained by the employers in which a key employee participates, and certain other plans, must then be aggregated (the required aggregation group).

So having a balance would not trigger aggregation.

Listen, you are asking all of the right questions, but if you're diving into this with these sorts of question I would strongly recommend you get some external assistance.  I recently got back into skiing, and you're on the double black diamond as a strong intermediate.  I assume you are working with an actuary? They might be a great resource for you.  I know perhaps this will come off the wrong way, but I honestly am trying to give you good advice even if it's tough to hear.