Top Heavy

[Guest PJR]

EGTRRA Laws: A DC plan with a plan year end of 9/30/02, so 9/30/02 is the determination date for TH for plan year ending 9/30/03. This is not a first year. The 9/30/01 determination date TH ratio was less than 60%, but according to old laws 2 participants would have been considered key employees based on the rule for Top 10 holding ownership and earning more than $35000 for the 10/1/01 through 9/30/02 plan year. Then comes the plan year beginning after 12/31/01, so the new EGTRRA laws apply. We calculate the TH ratio for 9/30/02 based on these new laws and the key ee status for allocation for the plan year 10/1/02 through 9/30/03. Using the new laws the rule of top 10 ownership disappears and these 2 participants are no longer key employees under any other rule. I determine they are former key employees, hence their account balances do not come into play in the calculation of the ratio for 9/30/02 determination date. Others say then are non-key employees. Would anyone care to comment on this and explain their perspective, please?

[Mike Preston]

You are correct, former key employees. Pretty sure this was in the Q&A at the 2002 ASPA Annual Conference.

[Guest lforesz]

Hi,

Do either of you have any idea who must get a top heavy minimum? If a group of employees is spun-off from a top heavy plan into a new plan effective 10/1/02, such that they are not participants in the top heavy plan as of 12/31/2002, do they still need to get a TH benefit? The thinking is that they were "participants" during the year even though they are not participants as of the end of the year and are still actively employed. Any thoughts are references are greatly appreciated!

[Kirk Maldonado]

What do the regulations say?

[Mike Preston]

I think they say exactly what was said by lforesz. If a non-key participates even for 1 day in a top-heavy plan, and, at the end of the year is still employed, that individual must receive the top-heavy minimum. See Q&A M-10 of 1.416-1. Having the participant participate in another plan is irrelevant.