rushlakeguy

I just want to thank everyone for their assistance with my situation, everyone in this thread and also from ETA Consulting separately. I'm moving forward under the assumption that I am not top-heavy in 2016 because the contributions for being top-heavy in 2015 should have been accrued at 12/31/2015. As such, I'm not on the hook for $48k.

I hear ya and we will be switching, but keep in mind this wasn't a situation of us selecting the cheapest provider. We're actually paying Paychex a decent chunk of change for our HR services. All the more frustrating

It's so frustrating. Would the IRS really disqualify the plan with me being at 60.7% under these circumstances? It's actually not 1% we owe, but 3%. I misspoke. You bring up a good point about forfeitures. There are a few people who were paid Top Heavy Contributions for the prior year that are no longer with the company. How do I claw those back?

Correct. They returned about $10k in Mar-16. The returned amounts are included in the 12/31/2015 settlement date calculation however. I then made 1% contribution in 2016.

no worries, thanks

When I talked to the Paychex rep, they said my return of excess in March-16 would adjust down my balance and that I should have no problem being under 60% (ie it would get applied back to the 12/31/2015 test date).

Can you walk me through how you get to 7/1/2015 in your first paragraph?

Yep. Made a $10k contribution a couple months ago.

Who would you all recommend a small business like myself switch to?

I'd like to hear more about how they could be liable and what I can do about it. Here's what happened: 1- We violated the ADP test at 12/31/15, so the owners had to return $15k of excess (returned March 2016). We were also top heavy and made a $10k contribution last month to correct it. 2- This was all brand new to us. We have had the plan for 2 years and had no idea these rules existed (kind of embarrassing I know). When I talked to a customer service representative about what to do, they processed my return of excess and specifically told me that because of this amount coming out, I should have no problem being under 60% (ie it would get applied back to the 12/31/2015 test date). Unfortunately I don't have this in writing. 3- Because we thought we were in the clear, the other owner and I each deferred a small amount of our 2016 compensation. Apparently just enough to get us over 60%. Had we not been told the excess wouldn't be included in the calc, we obviously wouldn't have. So frustrating

For #1, it says entry date = first day of the plan year and first day of the seventh month of the plan year. If the plan has a 6 month of service requirement, does that mean anyone who started after January 1st, 2016 isn't eligible for the 2016 top-heavy contribution?

Thanks Mike, very much appreciated. Regarding question #3, I think addresses this. There's a section in the plan document called "minimum allocation for top-heavy plans" which states except as otherwise provided in (3) and (4) below, the employer contributions and forfeitures allocated on behalf of any participant who is not a key employee will not be the lesser of three-percent of such participants compensation or (in the case the employer does not maintain a defined benefit plan in addition to this plan that designates this plan to satisfy code 401) the largest percentage of employer contributions and forfeitures, as a percentage of key employees compensation, as defined by 401(a)(17), allocated on behalf of any key employee during the year. 3- excludes employees not employed on last day of the year 4- excludes employees covered under another plan How do you interpret that?

I've run into an unfortunately situation for my company. I own a hair salon (50/50 partner) with another individual. We use Paychex to administer our 401k plan and was just informed that we are Top Heavy as of 12/31/2015 (60.7%) and owe $49k. This is a horrible as there are less than $100k of assets in the plan. I'm beyond frustrated as I was told back in spring that we were in compliance and now they are being entirely unhelpful in answering my questions, so I'm hoping someone here can help. It's a basic deferral plan. I've never made an employer contribution. Questions: 1) They are calculating the TH penalty contribution as being 3% of compensation for every employee who was employed in 2016. Is this correct, or should it only be employees eligible to the plan (6 months of service and over 21 years old) as of 12/31/2015? 2) what happens if an employee is terminated during 2016? any impact? 3) Myself and the other owner only made 1% contributions during 2016. I've heard I may be able to make a 1% contribution, rather than 3% for all employees. Is that true? 4) Is the vesting for the 3% contribution immediate? Thank you so much. I can't wait to get this behind me and replace Paychex as a provider.