Hi Have a potential client with an interesting problem.

Plan Year is 7/1 to 6/30. As of 7/1 the plan is only a profit sharing plan and is top heavy.

Effective 1/1 (mid-yr) the Employer amends his document adding 401(k) and safe harbor 3% non-elective contribution.

Here is the question:

Does the Employer owe a Top Heavy contribution for the full plan yr? Does the ER owe a TH contribution for the six months?

Does the ER owe a SH 3% for the full year or just the last six months?

Does the ER only have to meet TH/SH for the last six months when the plan actually has annual additions??

Top heavy is for entire year. Safe Harbor - depends on what the Plan says. If you have to put in 3% anyway for top heavy, you have covered both, right?

To better clarify. The client really only wants to contribute the safe harbor on the second 1/2 of the year's compensation.

We were hoping that with SH we wouldn't have to make the contribution for the for the full year. If they didn't add 401k there would have been no annual additions, requiring a TH contribution.

I think that if you have a safe harbor 401k plan that permits only deferrals and safe harbor contributions, then the Plan is exempt from top heavy rules. Then if your plan document says that the safe harbor 3% contribution is due only for the period from 1/1/04 to 6/30/04, you would not have to make the top heavy 3% for the whole year. But, to be exempt from top heavy you cannot have any other Nonelective contributions to the plan besides the safe harbor contributions.

The employer cannot add a safe harbor provision mid-year--you cannot add that mid year. It violates the participant notification rules.

Doesn't it?

Brian, if the Plan is not a 401k Plan already, you can add Safe Harbor mid-year, under the "new plan rules". Right?