Failed coverage testing in super top heavy plan

[Guest amybu99]

I have a super top-heavy profit sharing plan whose plan year end is December 31, 2001. During the plan year two of the three participants left (both terminees were NHCE). One was credited with more than 500 hours but less than 1, 000 and one less than 500 hours of service. Obviously, neither were employed on the last day of the plan year. The only remaining participant is the owner who is HC and key and gave himself a contribution for the plan year. The plan document's top heavy provisions include "last day of plan year" requirement so neither of the terminated participants are eligible to receive the minimum top-heavy allocations. However, since one of the terminated emplyoyees worked more than 500 hours she's a non-excludable employee for nondiscrimination testing purposes. However, she is not benefitting. The plan fails to satisfy the nondiscrimination testing for this reason.

Can I allocate a 3% top-heavy minimum allocation to the two terminees to pass the nondiscrimination testing if the plan document allows for a waiver of the "last day of plan year" requirement for the accrual of benefits? I can't seem to find any documentation that addresses this issue.

Thanks!

[jaemmons]

There is no top heavy contribution to be made since the only non-key ee's terminated before the last day of the plan year. In order to treat the ee who terminated with less than 501 hours as a statutory exclusion, the plan MUST require an employee to be employed on the last day of the plan year to receive an allocation of the PS contribution. If the plan doesn't contain a last day requirement and is not a cross-tested/class allocated plan, then the two terminees would need to receive that same contribution rate that the one HCE is getting or the plan won't pass 401(a)(4) on the contribution allocation rates.

[Guest amybu99]

The plan does have an end of the year requirement for employer contribution allocations and the terminee with less than 500 hours is a statutory exclusion. So the terminee with more than 500 hours will have to receive an employer contribution for the plan year. This makes perfect sense. I should have seen it.

Thanks for the insight.

[Blinky the 3-eyed Fish]

Keep in mind that the ability to do ignore the requirements for a contribution allocation must be spelled out in your document (410(B) failsafe). If it is not there, then you will need an amendment.