Top Heavy DB/DC & Excluded EE

[David]

Given the following situation: DB and 401(k) plans which are top heavy, same ee's covered in both except two non-keys excluded from DB, 401(K) has only deferrals and match, TH minimum covered in DB. Question: what about the excluded ee's that are not getting the TH min in the DB? Do they need a contr in the DC?

[Guest Hans Moleman]

Yep.

[David]

This is a discussion within our office, is there any specific guidance on this scenario in the regs, etc.?

[AndyH]

David, I'm not sure I can point to any specific guidance off hand, but the answer clearly is yes. The principal reason is that you have a top heavy aggregation group, so you need to provide a minimum benefit, and you have one or more people for whom you are not doing so throught the DB, so you must do so somehow.

I remember this from a post - TEFRA ALI-ABA tele conference-long time ago. scary.

[david rigby]

Andy is correct.

[David]

Thanks to all for the help. It makes sense that they can't be ignored (but we know about the IRC and common sense).

[Guest sdolce]

More specifically, look at 1.416-1,Q&A M-12.The key words (about halfway through the paragraph) are "required duplication or inappropriate omission." Not giving these two participants some minimum would clearly br inappropriate. The rest of the paragraph will help you decide how much to give them.

[David]

Also, 1.416-1, Q&A T-10. Specifically the sentence that starts with "However".

[David MacLennan]

This is off the thread subject, but have you considered the possibility the 401k elective deferrals and match are not deductible, and subject to an excise tax? See my post dated 7/5/01 regarding this (I'm still hoping to get someone's opinion, but no replies yet!) I'm assuming you have <100 participants and the ctbs are >25% comp.

[David]

David M.- Yes, I'm aware of the excise tax issue. I saw your post the other day. I hope some others respond. I think EGTRRA takes care of this in 2002 wrt ee deferrals.