Top Heavy test

[k man]

Is there a requirement in the code, regs or any other authority that requires a plan sponsor to actually perform a top heavy test when they know from prior years the plan is far from top heavy?

[Earl]

§107 Retention of records.

Every person subject to a requirement to file any report or to certify any information therefor under this title or who would be subject to such a requirement but for an exemption or simplified reporting requirement under section 104(a)(2) or (3) of this title [29 USC §1024(a)(2)or (3) ] shall maintain records on the matters of which disclosure is required which will provide in sufficient detail the necessary basic information and data from which the documents thus required may be verified, explained, or clarified, and checked for accuracy and completeness, and shall include vouchers, worksheets, receipts, and applicable resolutions, and shall keep such records available for examination for a period of not less than six years after the filing date of the documents based on the information which they contain, or six years after the date on which such documents would have been filed but for an exemption or simplified reporting requirement under section 104(a)(2) or (3) [29 USC §1024(a)(2)or (3) ].

(Sept. 2, 1974, P.L. 93-406, Title I, Subtitle B, Part 1, §107, 88 Stat. 850; Aug. 5, 1997, P.L. 105-34, Title XV, Subtitle A, §1503(d)(5).)

[rcline46]

There is no requirement under 416 to PERFORM a Top Heavy test, ever. 416 and the regs tell you HOW to perform the test, what vesting to use if you are Top Heavy, and what contributions MUST be made to a Top Heavy plan, and to whom.

Since the failure to provide Top Heavy benefits is not a nice situation for a plan, and testing is so easy, why would someone NOT do the testing?

[k man]

i agree with your interpretation. i also agree that in the vast majority of situations it would make sense to actually peform the test. however, if you are dealing with a big company with a plan that has been in existence for along time and never top heavy, then you might not feel that it is necessary.

[Guest pensionadmin]

See 416 regs:

"T-39 Q. Must ratios be computed each year to determine whether a plan is top-heavy?

A. No. In order to administer the plan, the plan administrator must know whether the plan is top-heavy. However, precise top-heavy ratios need not be computed every year. If, on examination, the Internal Revenue Service requests a demonstration as to whether the plan is top-heavy (or super top-heavy; see Question and Answer T-33) the employer must demonstrate to the Service's satisfaction that the plan is not

operating in violation of section 401(a)(10)(B). For purposes of any demonstration, the employer may use computations that are not precisely in accordance with this section but which mathematically prove that the plan is not top-heavy. For example, if the employer determined the present value of accrued benefits for key employees in a simplified manner which overstated that value, determined the present value for non-key employees in a simplified manner which understated that value, and the ratio of the key employee present value divided by the sum of the present values was less than 60 percent, the plan would not be

considered top-heavy. This would be a sufficient demonstration because the simplified fraction could be shown to be greater than the exact fraction and, thus, the exact fraction must also be less than 60 percent.

Several methods that may be used to simplify the determinations are indicated below.

(1) If the top-heavy ratio, computed considering all the key

employees and only some of the non-key employees, is less than 60 percent, then it is not necessary to accumulate employee data on the remaining non-key employees. Inclusion of additional non-key employees would only further decrease the ratio. . ."