Top Heavy

[Guest dbx]

Several questeions regarding top heavy plans:

- If a 12/31 plan year is top heavy in 2001 and it is now 12/2002, when must the minimum 3% of compensation be paid to the eligible participants?

- What year can the plan sponsor use this contribution as a tax credit?

- What year of comp should be used to determine the contribution?

- If the plan sponsor never makes the top heavy contribution and then wants to terminate the plan, what approach should the trustee take? Or if the plan sponsor never makes it, what are the consequences?

[austin3515]

1) Generally the due date of federal tax returns (including extensions if applicable(

2) Don't know. what credit?

3) IF the Plan is top heavy as of 12/31/00 (i.e 60% of balances at 12/31/00 are held by key employees), this impacts contributions for the 12/31/01 plan year. 12/31/01 compensation is used to calculate the minimum. There is some confusion about who is a "key employee" for purposes of who gets the contribution, but I think the majority believe key employees as of 12/31/00 (in this example) would not get a 3% contribution. Therefore, if someone became key in 01, they would still be entitled to the top heavy minimum.

4) The Plan could be disqualified, deductions disallowed. I also want to say that if they are not made 100% of the key account balances are taxable distributions (or am I thinking of something else?).

The trustee might want to mke the top heavy ontribution, and then just distribute in accordance with the participants final elections (i.e. rollovers, distributions, etc.)