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A sponsor is top heavy in the initial plan year (i.e. 2015). We accrue an end of year match to reduce the TH ratio below the 60% threshold that would in effect, get them out of top heavy for both the initial and subsequent plan years. They neglect to fund the match. During 2017 can they still fund the end-of-year 2015 match to reduce the TH ratio, or does that option go away and they now must fund the 2015 and 2016 3% top heavy allocation? Thanks for any input.

I administer a 401k plan (not SH) that will be top heavy in the current year (2017) based on last years valuation. Can the Employer amend the plan now for last year (after for the YE) and add a provision to make a discretionary matching contribution for 2016? With the additional matching funds deposited for 2016, the plan would not be top heavy in 2017 and all of the employees not deferring would not get a contribution. Any guidance would be appreciated. THANKS

Shareholder X of a corporation which sponsors an ESOP owns 4.8% of the NUMBER of outstanding shares of the company. This 4.8% is based on his non-esop shares only, and the total outstanding shares includes the ESOP shares (all outstanding company stock). Shareholder X is turning age 70-1/2, so determining his ownership % is important. If he is a >5% shareholder, he must take a substantial RMD for 2016 and all future years. If he is not a >5% shareholder, he does not have to take RMDs until he retires. Reg 1.416-1 T-17 says a 5% owner is any employee who owns (or is considered as owning within the meaning of 318) more than 5 percent of the VALUE of the outstanding stock of the corporation . . . To determine whether shareholder X is a >5% owner, can I do a pure number of shares owned over number of shares issued calculation, or do I need to know an appraised dollar value of shares for each of the other shareholders? In other words, the stock valuation for the ESOP may say ESOP shares are worth $10, but another owner may have a different per share value based on his specific discounts applied, depending on minority/majority and deemed marketability. If some shareholders' stock is worth say $8.00, then the math could work out that shareholder X owns more than 5% of the VALUE of all shares. Assume voting rights are equal for all shares. Which way does the 5% determination need to be made - number of shares or dollar values - and has anyone heard of the non-esop shares being valued for a purpose like this? Thanks.

Consider a safe harbor 401k plan with a few owner/key employees in the plan (nobody else). If the company adds a new non-key employee to the plan, won't the plan immediately become top-heavy, since the owners all have several years of assets in the plan and the non-keys have basically nothing at that point? Are there any workarounds for that problem, other than these I've found: Make sure the 401k only has safe harbor employer contributions (no more profit sharing, etc.), to qualify for the safe harbor top heavy testing exemption. The downside here is no profit sharing anymore, which hurts everyone. Provide an extra contribution for the new employee only, to fix the top heavy failure. The downside is that the employee kind of gets "more benefits" per year than the owners, which the owners may not like.

I have a single owner LLC that files as a sole proprietorship. The LLC has been in existence for 3 years. It purchased the assets of a going business 2 years ago. He had no employees prior to the purchase. If the qualifications are 3 out of the last 5 years, is the owner the only qualified person? If so is it top heavy? If it is top heavy, and he wants to contribute 25 % for himself, how much does he contribute for employees and do they have to meet the qualifications of a participant or is it for all employees that worked? He does have 1 employee that came from the purchased company that is still with him.

Do you have to apply coverage testing to a Top heavy calc if is just the NON HCE particpants are suposed to be receiving the Top Heavy Minimum? I had 2 HCE. One terminated during the year one is still there and DEFERRING.

I met with a prospect yesterday who is using an unnamed payroll provider for administration of their plan. The prospect started their plan on 1/1/2015. It is a QACA Safe Harbor Match(100 on 1% and 50% up to 6%) with automatic enrollment at 3% and auto escalation of 1% up to the level of 6%. Two Owners, 10 Employees. Prospect was told by unnamed payroll company that they must stop their deferrals because the plan is top heavy. My understanding is that the QACA SH Match works like the Basic Safe Harbor Match and Non-Elective in that the plan is deemed to pass top heavy unless the client makes additional discretionary contributions. I am still completely confused as to why the payroll company notified the client that they had to stop deferrals(10,000 each). I just want to make sure I am not missing something here. Thoughts on how to advise the prospect on how to communicate with the payroll company? We will be taking over administration in 2016, I am pretty certain of that.

I had a plan recently that failed Top Heavy testing. This is nothing new for the plan sponsors and they are used to making the 3% top heavy contribution. The problem that I ran into, was that after allocating a 3% top heavy contribution to all eligible participants, I ran top heavy testing and they were still failing both the ratio percentage test (401a) and the average benefits test. My question is this, does the plan need to do something beyond simply funding the 3% Top Heavy contribution to all eligible participants? Thanks, Andy

We are trying to determine the following: A S-Corp owned by a family , Father, Mother, 2 sons, 2 daughters - they all work for the company Father owns 10% of stock - controls 100% of voting stock Family Trust A owns 22.5% Family Trust B owns 22.5% Family Trust C owns 22.5% Family Trust D owns 22.5% The beneficiaries of the trusts are the respective children. Are the spouses of the beneficiary children Key EE's? We have never seen this before.

A 401k Safe Harbor Plan has the following provisions: - 6 mos elig for 401k deferral contributions (no min age) - 12 mos/1000 hrs (no min age) for employer SH (3%), discretionary PS (cross tested) - dual entry dates, 1/1 and 7/1 2015 Plan Year, there are 2 employees newly eligible as of 7/1: - 1 HCE (spouse of owner) - 1 NHCE Question 1 Assuming the Plan is NOT TH for the 2015 plan year, the 2 newly eligible participants will not receive SHNEC or PS but if their deferral %s pass the ADP test (testing only them), is it correct that the Plan will not fail any other testing (e.g. Gateway mins)? If this is incorrect, can the Plan be amended to correct via accelerating eligibility for SH and PS to same 6 mos requirement and not lose its Safe Harbor status for the year? Question 2 Assuming the Plan IS TH for the 2015 plan year and all other statements above apply... Assuming ADP test for 2 newly eligible passes, can the employer contribute 3% TH for these 2 newly eligible (assuming they are still employed on the last day of PY) without tripping the Gateway testing (assuming the GW minimum is at least 5%)? If this is incorrect, can the Plan be amended to correct via accelerating eligibility for SH and PS to same 6 mos requirement and not lose its Safe Harbor status for the year? Thank you for your assistance.

Say I have 2 plans. Plan A is 401k with no Keys. Plan B is a profit sharing plan covering all the Keys and enough participants from Plan A to pass coverage. Right now, the plans are not aggregated for Top-heavy since none of the Keys are allowed to contribute to Plan A (401k). If we allowed the Keys to contribute only the catch-up in Plan A, would the plans then have to be aggregated for Top-Heavy? The reason I ask is since we would only allow catch-up contributions in the 401k and catch-up contributions are not included in the TH test, do we still need to aggregate? Thanks

So, I've taken a job where some of the DB plans have separate accrual rates for separate groups of employees. A lot of the times, the accrual rate for a specific group is 0%. We're not counting people in these groups towards our 401(a)(26) count, since there's no meaningful benefit accruing for them. Now - let's take an example where the plan is combined with a 401(k) plan, and they're top heavy. The employee in question is Highly Compensated but not Key, and he's in one of those 0% accrual groups. Who out here thinks he counts as a participant in the DB plan, for purposes of needing to get a 5% top heavy minimum in the DC plan (the plan where the top heavy is taken care of for all)? Versus who'd think he's not really a participant in the DB and can get by with just 3% in the DC.... I wish the document had excluded these employees in the eligibility section, where it would be much clearer that they're definitely not "in" the DB plan. But that's not what I've got. Thanks... --bri (insert witty signature here....)

I have a potencial client that would like to start a plan for 2014. If the two owners they maximize their profit sharing (52,000), do I need to factor that in when calculatin Top-Heavy status or 2015 since it won't be deposited until next year. I know we add back 401k receivables. I know the plan will be TH in 2015 for 2016 but I wasn't sure if it will be TH in 2014 for 2015. thanks

Plan has "Fixed" Contribution equal to 5.7% of compensation and 5.7% of excess Compensation - 100% vested Plan Also has "Match" Contribution equal to 100% of elective contribution up to 5% of compensation - 2/20 Vesting Plan Also has "Minimum" Contribution equal to 3% of compensation minus the fixed contribution for the year. If fixed exceeds 3%, then no minimum made - 100% vested Plan uses Prior Year Testing Plan Document does not speak to a designated QNEC for correction of a failed ADP test Question: Should the plan fail the ADP test, can the Minimum contribution be re-characterized as a QNEC to pass the ADP test?

A law firm is considering making 2 associates Non-Equity Partners on 7/1/14. The current group of partners (5) do not make any deferrals during a given year until late in the year when they determine whether or not they are going to make a profit sharing contribution. If so, then they make elective deferrals and subsequently make a profit sharing contribution to all staff, which covers the TH contribution that they need to make. Based on the above, they have 2 questions: 1) Is a "Non-Equity" partner considered to be a Key Employee? 2) If yes, then does an elective deferral that employee made as an associate during the first half of the year trigger a required TH contribution for 2014? Thanks in advance for your help!

Quick question, I have a plan with 3 people, two owners, one non-owner employee. All are HCE. The non-owner EE (we'll call them EE1) receives a large bonus, the owners do not. The plan wants to exclude bonus. Since all are HCE, it would pass 414(s). The plan does a 3% safe harbor to satisfy top heavy. They used to have NHCE, but don't any more, but kept the 3% SH. As far as I know, since the compensation would pass 414(s), the 3% SH contribution on just the non-bonus compensation would be fine. Anyone disagree? My concern is the top heavy. Does anyone know, or know where I can find, some guidance on this? Would the change of the plan definition of compensation, no longer allow the SH 3% to do double duty and satisfy the Top Heavy minimum? What I read in 416©(2) requires 415 comp. But 416(H)(i) provides the Safe harbor contribution exception. which defines comp 401(k)(9) as 414(s). Slightly different option(I think is simpler): The owners really seem to like receiving their own 3%. But lets assume they didn't mind not receiving it. Is there any problem with using the ability to exclude the HCE from receiving the 3%SH? Exclude HCE from SH SH would satisfy ADP, owners could defer max. Plan would still satisfy TH with SH contribution, though none would actually be given unless a NCHE was hired. Thoughts? Something I'm missing?

We work with a 401k plan with two owner/employees who hit the 402g limit and with profit sharing, hit the 415 limit. They've adding 9 staff members in 2014 with a payroll of $1.1 mil exclusive of the owner’s compensation. Of the 9 staffers, two will make in excess of the compensation limit and the other 7 will hover around or above $100k. None of the 9 will be owners or officers and there are no family member-employees. We're expecting 100% participation from the staffers. In considering plan design, we initially considered incorporating the staffers and adding safe harbor since as near as I can tell the plan instantly will be top heavy. However, the owners are balking at the cost of either the basic match or the non-elective given the size of their payroll. Similarly, we considered new comparability design but anticipate that will be cost-prohibitive as well. We're considering starting a separate plan for the staffers, which would exclude the owners and vice versa. From what I've read, as long as no key employees participate in the staffers' plan, they do not need to be aggregated for top heavy testing. We're aware, however, that if any of the circumstances change and a staffer becomes a key employee, they must be tested together for top heavy. What I don't understand and cannot seem to find is what other impacts (other than administrative burden/expense) to nondiscrimination testing sponsoring two plans will have. Would the plans have to be aggregated for benefits, rights, and features if they use two different profit sharing formulas? Since neither plan will exclude employees or have allocation conditions on employer contributions, we don't anticipate coverage to be an issue if they have to aggregate the plans. Likewise, with ADP/ACP. There has to be something I'm missing. Thoughts? Will setting up a separate staffers' plan work?