Top-Heavy Determination for Non-Pension Plans -- 1st and 2nd Plan Year

[Guest Jan C]

The first year of a new calendar year plan is 1997. The Top-Heavy determination date for the first year is 12/31/97. The only asset as of 12/31/97 is the 1997 contribution of $30K which is entirely receivable ($20K to Key EEs and $10K to Non-Key EEs). For the first year of a plan, receivable contribution amounts ARE included when determining the Top-Heavy ratio, therefore, the Plan is Top-Heavy for 1997 since the T-H ratio would be 66.67%.

For the second year of this Plan (1998), the T-H determination date would be 12/31/97 as well. IRS Reg. 1.416-1 says that you DO NOT include receivable amounts determining the T-H ratio for the second plan year and forward. Since, if you do not include receivable amounts, the account balances as of 12/31/97 for all participants is $0.00. DOES THIS MEAN THAT THE PLAN IS NOT TOP-HEAVY FOR 1998??

(The Top-Heavy equation for 1998 is 0 divided by 0 = undefined.) Common sense leads me to believe it IS Top-Heavy for 1998, since if any amount at all of the 1997 contribution was deposited by December 31, 1997, it would be Top-Heavy for 1998.

[david rigby]

I don't agree with your analysis of the Regs. My read of 1.416-1, Q&A T-24, is that the accrued contribution is included. Therefore, the 12/31/97 T-H ratio of 66.67% would stand as applicable for the 1998 plan year.