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The "deemed not Top Heavy" is a year by year determination. Get rid of the policy or the premiums driving a contribution and you get rid of the problem in the future. Doesn't help for 2022 but if the premium hasn't been paid already by the company in 2023 there may be time to fix it.

Maybe I'm misunderstanding your question, but the only situation where the retroactive deferral is allowed is for a sole prop with no other employees - so nondiscrimination wouldn't be an issue.

Does the participant's existing account have sufficient assets and "aged money" that the future premium could be paid from existing account, (if the plan allows for it, and you can stay within the incidental limits) and thus no actual employer PS contribution is made? Might help in the future...

I couldn't agree more - I was careful to note that incidental limits must be satisfied!

Staying within the incidental limits is key. People often think you can use the "aged" money and just avoid the incidental limits, but that's just treated like an in-service withdrawal. Likely better to look at transferring the policy out of the plan.

Another solution may be see if you can reduce the face amount of the life insurance to maintain the survivor benefit, or place the policy on a reduced paid up status. After that the Plan Document would have language regarding the minimum face amount that must be met in order for the individual to purchase a policy which would limit the ability for this individual to have insurance if they do not receive a high enough contribution to pay the premium.

Paul I, I disagree with the following statement because the High Paid threshold (145,000) applies to the FICA wages of the individual participant, not the combined household income: "Further, the High Paid threshold will impact a subset of the NHCEs. A common scenario is where the children finally are financially off the parents budget and both parents now are working and trying to save more for retirement. This provision works against them because combined household income makes them High Paid."

If what Lou said is true then isn't the TH exemption lost forever regardless of what you do with that policy and related contributions prospectively?

Agree with Belgarath - use already-plan money to pay the premiums as an "investment transfer."

My understanding is once you have $1 dollar allocated that doesn't meet the exemption, the Plan loses the "deemed not top-heavy status", there is no distinction in the code as to whether that allocation goes to key employees or non key employees. A work around though possibly not practical is to set up a 2nd plan profit sharing only that covers only the participant getting the allocation and spin his policy into that newly created plan. That only works if the participant is an NHCE or you'll violate BRF but I'm hoping he is an NHCE already or you might have the same problem within the current plan.

Jsample, it sounds like they will accept Roth catch-up contributions if the plan allow catch-contributions but does not have Roth. Generally, a payroll service provider will be sending in the contributions so I suspect they are saying they will accept them if they receive them. This seems to be a slick way of avoiding the issues and leaving it up to the plan sponsor and payroll to figure out what to do. Thanks for the information!

Right, and to clarify, earnings can not be used as contributions.

Yes. You either need to add ROTH for everyone or remove all CATCH-UPS for everyone.

I would think the gains would be allocated to the participants in proportion to their employer match.