Multiple Employer PEO 401(k) Plan with Top Heavy Failure

[Guest gjfowler]

I have a company in a multiple employer plan that failed last year's top heavy test. Now, in September of the following year, this company has terminated services with this PEO and the participants are going to be taking distributions from the plan. Does the company still need to make the top heavy minimum contribution? Does anyone have any documentation regarding this? The top heavy employees have deferred more than 3%. Also, what compensation would you use (compensation up to the time of termination of services or compensation for the full year)? Any info that you have would be great. Thank you in advance.

[alanm]

You need more detail to be exact. But, if last year was the first year of the plan for the worksite, 3% on last years payroll is due by September 15th. 3% on this years payroll is also due at least through the period the client terminated and maybe whole years pay if another plan was adopted at another PEO or elsewhere. Participants should not be allowed to get distributions unless the worksite company certifies termination of service at the worksite.

The way to dance around collecting this years contribution, which doesn't have to be funded until next year, is to merge out the balances to a successor plan and give the new administrator notice of the top heavy situation. Otherwise, if you don't collect the money the PEO becomes liable to make the contribution.