failed top-heavy test corrections

[PensionNewbee]

a plan is top heavy in 2000, 2001 and 2002. The 2002 minimum contribution was made. The 2000 and 2001 contributions have not been made, because TH was "discovered" in 2002.

Do the minimum contributions to be allocated have to be adjusted for earnings? Point me to the right section of the regs/rulings!!!

Thanks!

[Mike Preston]

It is an interesting question because no matter how hard you look, you won't find a specific deadline for making the TH contributions in a ps plan. In a MP plan, of course, the deadline was that associated with minimum funding.

There are a couple of indirect references, though. First, a contribution not made within 30 days after the employers tax return due date for the year in question doesn't count for 415 until the year deposited unless a correction method such as EPCRS is used. In that case, if you have anybody due a TH contribution who has subsequently terminated, a TH contribution would end up being a 415 violation. Not good.

Hence, most people just take the "logical" approach of saying that the 2000 and 2001 TH contributions need to be corrected under EPCRS. Once you make that leap, the addition of earnings is mandatory.

[PensionNewbee]

Sigh. That's the direction I was afraid this would go. I've been reading the EPCRS Revenue Procedure, and every mention of top heavy corrections says to contribute and allocate the amounts, but does not specifically say that these contributions have to be adjusted for earnings. Am I expecting too much or missing something?

How are earnings supposed to be calculated for this kind of problem? And what if the plan lost money?

[Guest Paul Jalazo]

Refer to Section 3.01(3) of Revenue Procedure 2002-47. I believe the earnings methods set forth under this provision will apply.