Top Heavy minimum when plan has dual eligibility

There were no age and service requirements for deferral but there was a 1-year wait for all other contributions.

From read the attached IRS Section 416.– Special Rules for Top-Heavy Plans, my understanding is that whenever a plan design with dual eligibility, those who don’t meet the 1-year wait are entitled to TH minimum regardless of what type of Safe harbor Contribution the plan offers,. including Safe Harbor match and some of the participants didn't defer. 

Please help me better understand the rules if possible include the codes that go over this topic.

All participants are entitled to safe harbor minimum under 416 if the plan is Top Heavy.

If you are are a safe harbor match or non elective plan whose only employer allocation is the safe harbor contribution you are deemed not top heavy.

A plan is exempt from the top heavy minimum if it "consists solely of" deferrals and match which satisfy the ADP/ACP safe harbor. IRC 416(g)(4)(H)

If you have participants who are eligible for deferrals but not for safe harbor, then that portion of the plan is not satisfying the ADP safe harbor (the portion of the plan covering otherwise excludable employees is subject to the ADP test, but generally passes automatically as long as there are no HCEs). Therefore the plan as a whole no longer qualifies for the TH exemption.

Thank you, Lou & C. B. Zeller,

C.B.'s closing sentence reads out "therefore the plan as a whole no longer qualifies for the TH exemption". I don't think, I shall interpret this statement to mean otherwise excludable employee be included in the ADP test the rest of those statutory employees who met the 1-year of service.  Is the correct?

If so, the dual eligibility doesn't trigger top heavy minimum as long as there is no HCE in the otherwise excludable employee group and Safe Harbor match is the only employer contribution . Is that correct?

The fact remain the same but instead of Safe Harbor Match if the only contribution was 3% non-elective Safe Harbor. 

2 hours ago, C. B. Zeller said:

A plan is exempt from the top heavy minimum if it "consists solely of" deferrals and match which satisfy the ADP/ACP safe harbor. IRC 416(g)(4)(H)

If you have participants who are eligible for deferrals but not for safe harbor, then that portion of the plan is not satisfying the ADP safe harbor (the portion of the plan covering otherwise excludable employees is subject to the ADP test, but generally passes automatically as long as there are no HCEs). Therefore the plan as a whole no longer qualifies for the TH exemption.

It's a good reason to NOT have split eligibility if you ever think you might even be close to top heavy.

2 hours ago, AdKu said:

Thank you, Lou & C. B. Zeller,

C.B.'s closing sentence reads out "therefore the plan as a whole no longer qualifies for the TH exemption". I don't think, I shall interpret this statement to mean otherwise excludable employee be included in the ADP test the rest of those statutory employees who met the 1-year of service.  Is the correct?

If so, the dual eligibility doesn't trigger top heavy minimum as long as there is no HCE in the otherwise excludable employee group and Safe Harbor match is the only employer contribution . Is that correct?

The fact remain the same but instead of Safe Harbor Match if the only contribution was 3% non-elective Safe Harbor. 

 

I am having trouble parsing your question, but the simple version is this: if your plan has different eligibility requirements for deferrals and safe harbor, then it is subject to the TH minimum.

C. B. thank you for your help. I was able to find the answer from EOB.

Please someone provide me the IRS code or Treas. Reg. that go over a top-heavy cross-tested plan (DB/DC plan with safe harbor non-elective  contribution) with dual eligibility where otherwise excludable employees must receive a top-heavy minimum contribution thereby qualify for a minimum gateway contribution.
 

1.416-1 Q&A M-12 provides the TH alternatives for an employer who maintains both a DB and a DC plan.

1.401(a)(4)-9(b)(2)(v) contains the combo gateway rules.

"No good deed goes unpunished."

The employer is trying to do the right thing by allowing participants with less than one year of service to enroll and make 401(k) contributions. But, as noted, if the plan is top-heavy, the employer will have to make the 3% minimum top-heavy contribution for those participants.

Anybody catch the error in adku's last statement?

Thanks for reading carefully Mike. Otherwise excludables would not have to receive the gateway, assuming that there are no otherwise excludable HCEs. They do have to get the TH minimum, although if they are not eligible for the DB plan then they would only have to get the DC TH minimum.

Thank you, C.B. Zeller and all of you. You've been very helpful.

If the plan required to provide the missed DC TH minimum for prior plan year and lost earnings on.

What interest rate should I be used if the  the DC plan fund had negative return?

Is the DOL lost earning calculator for missed deferral acceptable way of determining the lost earnings on the TH minimum?

If possible please include the the IRS code or Treas. Reg.

There are multiple ways to calculate the earnings on a corrective deposit. You should read Rev. Proc. 2019-19 Appendix B section 3.

If you are a subscriber to Erisapedia.com, their Plan Corrections eSource is a great reference for this kind of thing.