Add Voluntary After tax to SH Plan--does it mess with TH?

We have a client that wants to add a Voluntary After Tax component to a Safe Harbor Match plan (not Roth).  The SHM will be the only employer contribution.

The top heavy regs say if a plan consists SOLELY of a CODA and the SH, then the plan won't be top heavy.

Does the addition of the VAT mean top heavy is back in play?

I would think so.. Emphasis on think... Like you suggest it is a different source that what the exception allows. 

I am assuming that your client that wants to add VAT to the Plan is a HCE. Does he think that enough NHCEs are going to contribute VAT to the Plan in order to pass ACP testing?

We believe there will be sufficient contributions by the staff to pass ACP.

I was thinking that maybe because the VAT is an EMPLOYEE contribution it MIGHT be ok.

29 minutes ago, 401_noob said:

I would think so.. Emphasis on think... Like you suggest it is a different source that what the exception allows.  

I agree. Also, employee contributions are included in determining the present value of accrued benefits for top heavy purposes, which seems to support this conclusion.

The top heavy exemption says:

Quote

 

416(g)(4)(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).

 

Voluntary after-tax contributions are not part of a CODA [see 1.401(k)-1(a)(2)(ii)] and they are not match or safe harbor contributions, so a plan that has them does not meet the requirements for the top heavy exemption.

Kevin, using that logic, Rollover contributions are not part of a CODA, nor are they safe harbor contributions.

So, plans that have a rollover contribution during the year lose the TH exemption?

but rollovers don't count toward 415 limit, aren't used in any testing or anything else, so why would you count them as 'contributions' like other types of contributions?

I agree with Tom.