A safe harbor 401(k) using the 3% NEC is determined to be top heavy. The plan also has a discretionary match of providing a dollar-for-dollar match on the first 3% of compensation. The plan has a one-year eligibility requirement and semiannual entry dates. Must an employee who becomes a participant on July 1 receive a 3% top-heavy minimum contribution for the entire year? Or only for the period from July 1 to December 31?
Rev. 04/04/08, E-mail Alert 2008-5

The top-heavy contribution is based on the Section 415 compensation definition, i.e. compensation for the entire year. However, if the plan is deemed to be not top-heavy rules for the year, then the entry date does not matter. The plan in this scenario has only a discretionary match within the safe harbor rules and deferrals and a safe harbor 3% contribution. Therefore, the plan would be deemed to be not top-heavy for the year. Keep in mind that whether a safe harbor 401(k) is deemed to be not top heavy is an annual determination.