miniscule error causes top heavy problem

A very small SH 401(k) plan has five eligible participants.  Two are deferring, one HCE and one NHCE.  Two other HCEs are not deferring, and one (now deceased) NHCE did not defer.

In 2018 the plan sponsor made the SH match every pay period (by choice - not required).  The NHCE who was deferring received a few dollars too much match as of the end of the year.  The extra amount equals 0.07% of the NHCE's annual compensation.

So there is what amounts to a miniscule profit sharing contribution made to one NHCE which causes the plan not to meet the exemption to the top heavy rules. 

What are the options for addressing this?

Thanks!

Does the other employee have more match coming to him/her as of the end of the year?  Could this be an erroneous match allocation to the wrong particpant's account?

is the HCE who is deferring Key? If not then there is no problem.

Otherwise there are a few options I can think of:

1. Forfeit the excess contribution. The participant was not entitled to it under the plan's formula so it can not stay in their account. Could possibly be returned to the sponsor as a mistake of fact, depending on the circumstances.

2. True up the match on an annual basis (if this will help).

3. Make an additional discretionary ACP safe harbor match, if allowed by the plan document.

4. Make the necessary top heavy minimum contribution to the non-Keys.

I don't think the few extra dollars inadvertently added to the match automatically constitute a PS contribution.  The employer did not declare any PS contribution, they simply made an error in the match calc.  If it's really small I'd say ignore it.  Or "forfeit" it and use it to adjust a match deposit this year.  

I kind of agree with you that if nothing is done, it is a PS contribution.  But there's level of sanity that should prevail...I'd either ignore it, forfeit it, or bury it as a gain (essentially ignoring it but cleans up the reports).

only two participants deferring - one HCE (owner, so key employee)  and one NHCE.  HCE SH match fully funded by 12/31/18.  Excess match for NHCE is $12.14.  Cost of TH to NHCEs would be $560+.

Can the plan be amended retroactively for 2018 to do the additional discretionary ACP safe harbor match?  Will that still exempt the plan from TH?

It is an excess match, and can be corrected under EPCRS.

Basically, you remove the excess (plus earnings) and put it in a suspense account and use it to cover the next match deposit.

You would not be able to amend 2018 to accommodate a discretionary match.

Why not treat as additional match to those who deferred? Never looked at this before or researched it, but as long as does not exceed 6% I would think still fits in safe harbor. 416(g)(4)(H) says "meets" and "met," not "just barely meets/met." Maybe IRS has said differently informally and someone will correct me then, I'm sure. Of course, you also need to check the plan document/adoption agreement carefully to see how the additional amount might be characterized. Also the safe harbor notice would need to be checked to make sure consistent with that.

I also agree with others above that if done by mistake it could probably be withdrawn, but would need more facts.

Thanks to C. B. Zeller for the suggestion #3 about a discretionary ACP Safe Harbor match. 

I checked the plan document and it does contain that provision, so I am making that recommendation to the plan sponsor and his accountant.

Really appreciate all the input and advice!