Top heavy determination. Subtract receivable or not?

[jkharvey]

When I searched the message board archives I found a discussion on this topic that dated back to 2003 and 2002. There was some talk about a comment made by the IRS at an ASPA conference (2002 conference) that indicated the contr. receivable should NOT be removed from participant account balances when determining top heavy status. This position, however, appeared to be contrary to the Regulations at 416.

I was wondering if there is any more recent discussion on the matter. Are most administrators removing the receivable from the end of year balance when determining if a plan is top heavy or are you leaving it in the balance?

I know that this issue only pertains to plans not subject to minimum funding (412) or to first year of a plan.

[david rigby]

Will you accept Gray Book Q&A 2003-37 as “guidance”?

2003-37

DC Plans: Receivable Contribution and Top-Heavy Determination

Q&A T-24 of the 416 regulations says that if a plan is not subject to 412, then the account balances are not “adjusted” to reflect a contribution made after the determination date. Most practitioners have taken this to mean that non-412 plans (profit-sharing) should not take into account contributions actually made after the end of the plan year, but that such receivables should be taken into account for 412 plans (money purchase) along with adjustments for waived contributions.

Is this a correct interpretation? If not, what is supposed to be excluded?

RESPONSE

The term "account balance" in the regulations includes contributions credited to the account of a participant as of the determination date, not just the contributions actually made. This is the balance communicated to plan participants as opposed to a cash basis of accounting reflecting actual assets on hand at that date. The rule addressing adjustments to the account balance for contributions made after the determination date, applies to any waived funding deficiency that is not considered part of the participant's “account balance” until paid.

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[R. Butler]

We disagree with the Gray Book. Per §1.416-1, T-24 pension plans not subject to §412 use the cash basis. We see no basis for making the distinction pointed out in the Gray Book

At one time Sal Tripodi took the position that nonpension plans use cash basis; I'm away from my ERISA Outline Book today, so I can't guarantee that 2005 Edition says the same thing.