Top Heavy Minimum Allocations in 2 Plans

[mming]

Employer has an existing integrated profit sharing plan that is top heavy for calendar 2000. A non-integrated ESOP plan is added for 2000. The 2 only key employees benefit under both plans making both plans a required aggregation group and entitling all participants to a top-heavy allocation for 2000.

The plans have different eligibility requirements allowing 3 employees who are not eligible for the profit sharing plan to be eligible for the ESOP. The ESOP's first year contribution was only $1,000 while approximately 4% of comp. was contributed to the profit sharing for 2000. Everyone will receive at least 3% of comp. in the PSP.

The $1,000 ESOP contribution is less than 3% of comp. for the 3 ESOP participants who are not eligible for the PSP. Would it be acceptable to allocate the $1,000 entirely among these 3 employees since the other ESOP participants are receiving a top-heavy minimum allocation under the PSP?

Also, since these 3 employees would be receiving less than 3% of pay in the ESOP, should a portion of the PSP contribution be allocated to them for the difference, i.e., allow them to prematurely participate in the PSP so they can get 3% of pay between the two plans?

All help will be very much appreciated.

[rcline46]

First, make sure your plans are coordinated so that TH is not required to be given in BOTH plans.

Second, you must give the 3% to the non-PSP ees in the ESOP. TH is required, under most allocation schemes, to be given first. Then if any of the $1000 is left, allocated generally to OTHER participants in ESOP (up to 3%, etc). If $1000 not enough then er must deposit enough to make the 3% for the three.

[david rigby]

Sounds good to me.

Just a caution. When you state that the "plan is top heavy for calendar 2000", let's clarify.

First, top heavy is plan year based, not calendar year based.

Second, the top heavy percentage at 12/31/1999 is used to determine if a top heavy minimum for 2000 will apply.