Top Heavy Contrib Subject to Coverage?

I forget if I asked this before, but are Top Heavy contributions subject to coverage if that's the only ER contribution?

Hypotheical:

Plan is 401(k) only.  Does not allow for match or ER discretionary contributions

1 owner, 10 NHCE/non-keys.  Everyone eligible for 401(k) BOY.

4 NHCE quit in summer.

Plan is Top Heavy. 

So, only 6/10 EE's get Top Heavy.

Do I have a coverage issue?  How do you get around that if I do?

Not sure if TH is subject to coverage... would have to look into it....

But, HCE would be 0 of 1.  wouldn't that cause the coverage to pass?

Great point. (I KNEW I was overlooking something!)

But what if 3/6 left are HCE (non key)

Then you have (3/6) / (3/4) = 37.5%

Yes, top heavy minimum is subject to coverage. If an allocation only to the non-keys employed on the last day fails coverage then you will need to make additional contributions to NHCEs to pass. Don't forget about the average benefits test.

Hopefully your plan document doesn't allocate THMs "to all" rather than just non-Keys. 

And having non-Key HCEs getting a THM would at least make for a more substantive 410b test.

I find it odd that the coverage test would apply to a contribution that is mandated in the code.  The only people being left out are the people the code says doesn't have to get anything to begin with.

6 minutes ago, BG5150 said:

I find it odd that the coverage test would apply to a contribution that is mandated in the code.  The only people being left out are the people the code says doesn't have to get anything to begin with.

The internal revenue code is full of oddities.

But yes a T-H contribution needs to pass non-discrimination tests on employer contributions even though it is mandated by the code.