Must top-heavy minimums be provided to P's who have entered 401k; but

[Guest Dash02]

My client wanted its employees to become eligible to make 401k deferrals immediately upon date of hire; but only to be eligible to receive an allocation of the discretionary profit sharing contribution upon satisfying 1-year of service and reaching entry date. In other words, the plan provides for different eligibility and entry dates for the P/S and 401k features.

The plan became top-heavy for the 2002 plan year. Do those employees who entered the 401k portion of the plan, but not the P/S portion, have to be provided the top heavy minimum?

[lkpittman]

Yep. Once an employee becomes a Participant under the Plan (whether or not he has met eligibility for employer contributions), he or she is a participant for top heavy purposes. Also, watch out for plans that use comp from date of entry (for example, someone who enters at 7/1 and plan states that comp for allocation purposes is 7/1-12/31 comp). The employee will get a 3% top heavy on entire year (415) comp. We've had plans that have been implemented without taking these things into consideration and plan sponsor isn't happy!

[david rigby]

Don't forget that EGTRRA changed the definition of how the top-heavy test is done. Might be worth a review to make sure this has been done correctly.

BTW, this EGTRRA change is not optional.

[Tom Poje]

Basically yes, you can't do much about it.

however...

back in an old thread someone indicated they actually received a determination letter on a plan that had immediate eligibility for deferrals and 1 year wait for profit sharing (including top-heavy)

I suppose if you get an approval letter anything is possible.

Given the concept of a safe harbor nonelective (ha, I call them SHNECs) in which one also has to have a year of service for eligibility (not allocation purposes) the idea of applying it to top-heavy might not be far fetched. But I would be willing to bet the plan you are talking about doesn't fall into that category.