Safe Harbor 401(k) Plans: When Are They Exempt from Top Heavy?
In Revenue Ruling 2004-13, the IRS explains the exemption from the "top heavy" rules for a plan that consists solely of a safe harbor 401(k) arrangement.
Specifically, the IRS explains that if the plan document permits other contributions to be made to the Plan, but in operation those contributions aren’t made for a safe harbor year, the plan will be exempt from "top heavy" for that year (i.e., the sponsor won’t be required to make top heavy minimum contributions for the non-key participants). However, if any contributions, other than the safe harbor contributions, are made, then the exemption from top heavy is lost even though the additional contributions may be to the advantage of the rank and file employee.
Moreover, the IRS has explained that if forfeitures are allocated like contributions to the accounts of participants, then they are treated as contributions and will cause the loss of the "top heavy exemption." This could occur, for example, where, prior to electing safe harbor status, the plan had received profit sharing contributions subject to a vesting schedule.
© 2004
Reish Luftman Reicher & Cohen. All rights reserved. This special Report on IRS and DOL Developments is published as a general informational source. Articles are general in nature and are not intended to constitute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish Luftman Reicher & Cohen does not warrant and is not responsible for errors or omissions in the content of this report.
Learn more about R&R related practice areas:
Employee Benefits
