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401(k)/(m) testing in a top heavy plan


Guest Beavis

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This looks kosher to me.

You could run into snags in future years if you plan on switching between prior and current year testing. Someone correct me if I'm wrong on this, but (assume that the data you provided is current year) if you want to use prior year testing next year, your numbers would look like this...

NHCE

K = 6.4%

M = 0.0%

I think congress uses the missing 1.6% to pay for special prosecutors.

[This message has been edited by Beavis (edited 09-24-98).]

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I need clarification relating to a top heavy plan which is passing the k/m testing by a huge margin. In fact, the NHCE averages are HIGHER than the averages for the HCE group:

NHC Group k test: 8% m test: 3.5%

HCE Group k test: 6% m test: 2.0%

I understand that contributions used to pass the m test cannot also be counted as a top heavy contribution. Therefore, I want to use none of the matching contribution for the NHCE group in the test. My test results now look like this:

NHC Group k test: 8% m test: 0.0%

HCE Group k test: 6% m test: 2.0%

I now use a portion of the 8% (k test for NHCE group) to pass the m test. Specifically, I "move" 1.6% from the k test to the m test to give the following test result:

NHC Group k test: 6.4% m test: 1.6%

HCE Group k test: 6.0% m test: 2.0%

Th plan still passes both tests and I can now count the actual matching contributions received by the nonkey employees toward the top heavy contribution.

Can I do this?

[This message has been edited by LCARUSI (edited 09-24-98).]

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I agree you could do this. I have also used a situation like this in the same way. You should check your plan document though to ensure that it allows for the matching contributions not used in the ACP test to be used for the top heavy.

For example, the PPD document has language that allows for this situation for the nonstandardized plans, but not if the plan is on the standardized document. If it is a PPD standardized plan, it states that the top heavy minimum contribution will be calculated without regard to any matching contributions. Section 3.04(B)(5)

DMH

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