Top heavy plan with a catch up contribution.

[pbarrett]

Let's assume we have a top heavy 401(k) plan with an 60 year old owner who does not defer because he does not want to have to make the minimum top heavy contribution. Can he make a $1000 catch up contribution for himself and a -0- deferral whereby avoiding making a top heavy contribution? (Assume the plan allows for catch up contributions). Does the max deferral have to be hit before you can allow for catch up contributions??

[Tom Poje]

that would be my understanding of the rules - he has to hit max deferrals before he can do catch up.

there has been some discussion of imposing a plan limit of 0% on owners. therefore he has hit the plan limit, and by logic, he should be able to put in a catch up of $1000.

I see nothing that would prevent soeone from doing that. I don't think you can impose a 0% deferral limit on a plan wide basis and accomplish the same thing. that definitely sounds discriminatory.

perhaps if you put a cap on certain (or all people) you would have to do a BRF test. if the individual is an hce it should be ok since you can generally be descriminatory against hces.

I don't think anyone knows for sure.

[Tom Poje]

catch up contributions are not considered when determining what % of pay a key employee has received. therefore, if the only contribution to a key was a catch up, the top heavy minimum would be 0.

Catch up contributions are considered part of the balance and would be used to determine if a plan was top heavy.

be careful! you did not indicate if there was a match. you can match catch up contributions - in fact, since most documents simply state they are matching deferrals, I think you would have to specifically state catch up contributions are not matched. otherwise you will have to provide a top heavy minimum for the % of match he received.