There is a seemingly new concept in this Revenue Ruling. It affects safe-harbor 401(k) plans that desire to be exempt from the top-heavy rules by only having the safe harbor contribution and elective deferrals and no other contributions.

Specifically. in a safe-harbor 401(k) plan that permits employees to defer before meeting the statutory one-year-of-service requirement, but that requires a longer period of service before being eligible for the matching contribution, the plan is not eligible for the top-heavy exemption. Since newly-hired nonhighly compensated employees (NHCEs) will not be eligible to receive the same level of contributions as longer-term highly compensated employees (HCEs), the plan does not satisfy the requirements for the top-heavy exemption. This has a significant impact on the plan. For example, other longer-term non-key employees who did not defer would now be eligible for the top-heavy minimum. Those who deferred 1 or 2 percent might also be eligible to receive the difference up to the 3% (and would be, if the plan's top heavy minimum is actually 3%.) All this because the employer was trying to be more liberal than allowed and letting new hires defer early. Since staggered eligibility is a normal design method, employers may want to reconsider their plan's eligibility if they will be impacted by this change.