Is it or isn't it...?

[Ervin Barham]

Interesting question for something just taken over. Plan starts in 1999 with short plan year. Deferrals and match are small with low participation (refunds made). No P/S made. Based on deferrals & match, plan would be top heavy. However, if full 3% top heavy is made only to the non-keys, this would make the plan non-top heavy. Since this is the first plan year, the P/S contribution should be counted.

The P/S contribution was not made within the 2000 plan year, so there are some corrections that have to be made.

Any thoughts as to whether the plan is top heavy for 1999?

Thanks!

Ervin Barham

[MR]

ervin,

we've had the same "catch 22" at our office a couple times. we determined the plan to be top heavy in year 1 and not in year 2. pretty hard to argue that its not top heavy in first year.

[rcline46]

Did you check document to verify that TH only goes to non-Key to accomplish what you desired?

I believe that since TH is mandatory, it is accrued and counts for 1999 no matter when deposited.

As a note, if a 401(k) plan then a nice QNEC or QMAC in the proper amount (if HCE = KEY) which may be less than 3% is a nice way out of TH for first year, which then includes second year, and can be done after year end as you noted for the first year only.