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Plan termination, top heavy


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Have a 401(k) profit sharing plan, with safe harbor match provisions.  The plan is top heavy and the effective date of the plan termination is 7/1/17.  The owners made salary deferral contributions and received the match (or will, through the termination date, as will the couple of regular employees that participate in the plan).

I believe the approach to take for top heavy purposes is to consider it a short plan year of 1/1 - 7/1/17.  Anyone employed as of 7/1/17 would be eligible for the top heavy contribution.  The problem is, this employer has a number of seasonal employees that normally would not be employed as of 12/31, thus ineligible for the top heavy contribution.  If we go with the 7/1/17 date, this will pull in quite a few employees that have never received a contribution, and the amounts will be fairly small.  It doesn't seem like this would be the intent of the regulations.

Thoughts are appreciated!


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Wouldn't it depend on whether the Plan terminated with or without cause since one of the requirements of being a Safe Harbor is that it has to be in place for 12 months?

I am assuming that you are relying on the SH to get a TH pass since you mentioned that the only contributions have been/will be deferrals and SH match. Hope that there aren't any forfeitures. 

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at the 2010 ASPPA Conference (Q and A 3)  emphasis mine.


DC plan is top heavy and has a plan year ending 12/31. The plan terminates on September 15, 2010. Normally, TH minimums are provided only if the employee is employed on the last day of the plan year. (Assume that there are salary deferrals during the year so that, if a top heavy minimum is required, it needs to be made.)


(1) For the 2010 plan year, is 9/15/2010 treated as if it were the last day of the plan year, so that only non-key employees who are employed on that date are entitled to a TH minimum?

(2) If (1) is Yes, is the 3% minimum calculated for compensation from 1/1/2010-9/15/2010?


(1) Of course, if there is no employer contribution, there would not be an obligation to provide top heavy minimum contribution. But, if there were contributions to keys during the year, including elective deferrals, there is a top heavy minimum based on compensation and employment through 9/15/10. Plan must liquidate within a reasonable time under Rev. Rul. 89-87 or else 9/15 date may not be reasonable. There is effectively a short plan year for top heavy purposes.

(2) yes


As I recall from the discussion, if the assets weren't paid out at all, the top heavy comp could possibly shift to the end of the year.

using that logic, let's say instead of 'terminating' the plan, you simply freeze deferrals 7/1, so no more match as well. instead, terminate the plan 9/1, now the seasonal help is 'gone' so not eligible for top heavy. but of course now top heavy is based on 2 more months of comp for everyone else.

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