top heavy plan with no employer discretionary profit sharing contribut

[Guest ROB VIDOVICH]

I have a profit sharing plan which added a coda feature and an employer match provision to the plan effective 3/1/2000 (First day of Plan Year). This plan was top heavy for the 2000 Plan Year and is top heavy for 2001. The Company did not make any discretionary employer contributions last plan year and they did not for the 2001 plan year (2/28/01). The plan is already using a top heavy vesting schedule, and for the 2001 plan year refunds of excess contributions and excess aggregate contributons are required. Since the employer made matching contributions to the plan will they be required to make an additional top heavy contribution for the 2001 plan year???

If so, will I have to look at the matching percentages of all the non-key employees who received matching contributions?????

[Medusa]

The short answer, without knowing more about the situation, is yes. Matching contributions can be applied toward the top heavy minimum only to the extent they are not needed for ACP testing. This is likely to be mimimal or nonexistent if you have HCEs in the plan.

[Guest James Osterhaus]

I don't think so. As long as the key employees didn't make any deferals, a top-heavy contribution shoudn't be required. If Key employees did make deferals than a top-heavy contribution would be required.

[Guest Hans Moleman]

In a top heavy plan the non-key employees must receive a top heavy minimum contribution of the lesser of 3% or the highest percentage received by a key employee. For the latter determination, elective deferrals and matching contributions are considered. The top heavy minimum contribution cannot be satisfied by a non-key's elective deferrals.

Example:

Key employee

Comp: 100,000

Deferrals: 2,000

Match: 500

PS Cont: 0

%: 2.5% required top heavy minimum contribution if this key is the one with the highest percentage

[Richard Anderson]

Rob Vidovich,

Your plan document may or may not allow matching contributions to satisfy top heavy minimum requirements. What does the plan document say?

Even if the plan document allows the matching contribution to satisfy the TH minimum, it usually is not practical to do so. Because, if you use the match for TH minimum, then you can not use it in the ACP test. That will usually cause the ACP to fail much worse.

For example, if an employee gets a match equal to 4% of comp, you can (if your document allows) use 3% of that match to satisfy the TH requirement. But, when you do the ACP test that employee will be tested as if his match was 1%.

[david rigby]

This may be implied but just in case:

Could there be another plan in the top-heavy aggregation group? If so, check to see what it's T-H minimum provisions are.

[Guest bjschiedel]

Here's one for you fellas to chew on:

I have a top heavy plan that does not make any employer matching or discretionary contributions, only pre-tax deferrals are allowed. The plan year is a short year from 10/1/01 to 12/31/01. In order to calculate the 3% minimum contribution (plan is already subject to 3 year cliff vesting) do I use the partial year compensation from the effective date of the plan (10/1/01-12/31/01) or full year compensation (1/1/01-12/31/01)?

Also, this is totally unrelated but I am curious if you guys know the answer. Does the type of bankruptcy that a participant is claiming (i.e. chapter 7,11,13) have any effect on the likelihood of their outstanding loan being defaulted or deemed uncollectible???