Top Heavy Plans

[Guest DIGMYDOG]

One employer, two Plans:

The first Plan is a Profit Sharing Plan where the Key employees have over 60% of plan benefits, so Plan is Top Heavy (and has been for several years)

The second Plan is a new Money Purchase Plan where the keys do not have over 60% of plan benefits.

Is the second Plan automatically top heavy because the first plan is? Therefore, accelerated vesting apply for the second plan as well as the first plan.

Do I need to aggregate the two plans together for top heavy determination?

Both Plans pass the general non-discrimmination tests separately.

Any help would be appreciated. Where would I look this up?

Thanks

[david rigby]

You can look up the TH regs at 1.416

http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html

See Q&A T-6 for the definition of a "required aggregation group". In a nutshell, if one (or more) Key Employees is a participant in both plans, then the plans must be aggregated. Note that when you have a required aggregation, a TH percent for each plan standing alone is meaningless.

See Q&A T-7 for a "permissive aggregation group". It sounds like this will not be relevant to your situation.

The TH status of the required group will be determined at the determination date that applies to both plans, which might be the end of the first plan year for the new plan.

BTW, curious as to why you have a new money purchase plan. That is rather unusual post-EGTRRA.

[Guest DIGMYDOG]

Thank you!

I get it now...

If both plans have the same Key ees, then both plans MUST be aggregated for TH purposes. It's as simple as that.

I added that site to my favorites, thanks for your time.

Yes...I was wondering about the MPP too (post EGTRRA). I didn't sell the plan. I think it will be merged into the PPS before the the end of this plan year (PYE 8/31/03).

[R. Butler]

I think you may be missing something

T-6 Q. What is a required aggregation group?

A. For purposes of determining whether the plans of an employer are top-heavy for a particular plan year, the required aggregation group includes each plan of the employer in which a key employee participates in the plan year containing the determination date, or any of the four preceding plan years. In addition, each other plan of the employer which, during this period, enables any plan in which a key employee participates to meet the requirements of section 401(a)(4) or 410 is part of the required aggregation group. This concept may be illustrated by the following examples:

There would be a required aggregation group:

1. If at at least one key employee participates in each plan. It does not have to be the same key employee.

2. If plans are aggregated to pass 401(a)(4) or 410(b).

[david rigby]

Hold on. What do you mean by "it does not have to be the same key employee"?

There has to be a common Key Employee, but it does not have to be all Key employees.

[Blinky the 3-eyed Fish]

Pax, I don't agree. If Joe Key is in one plan of the employer and Fred Key is in the other, that is enough to cause a required aggregation group. Where do you read there has to be the same key in both of the plans?

[QDROphile]

Rephrase R. Butler's paragraph (2) to provide more detail: You have to include any plan that is aggregated with a plan described in (1) in order for the plan described in (1) to pass 401(a)(4) or 410(b), whether or not the plan has a key employee in it.

[GBurns]

QDROphile,

I don't think you answered Blinky's question of "Where do you read there has to be the same key in both of the plans? " .

The point of R Butler's post, which is not his opinion but the actual rule, is that all that is required is "a key employee " to participate in more than one plan of the same employer. It does not say "the key employee" nor "the same key employee" thereby leaving the requirement to mean any key employee whether the same key or a different key.

[mbozek]

When is aggregation of two plans for TH purposes required under the terms of the plan documents?

[GBurns]

mbozek,

I thought that aggregation issues were as determined or as required by the IRC and Treas Regs and not by the Plan Document. Or are they determined by the PD as you seem to be implying?

[mbozek]

The TH provisons including aggregation rules are required to be stated in the plan document and are reviewed by the IRS. An advisor should always review the plan document first to see how the plan defines the TH rules since some drafters are better at stating the rules (although most plans regurgitate the LRM language).

[QDROphile]

GBurns: I was not trying to respond to Blinky's post, I was expanding the explanation of a point in R. Butler's post about how a plan with no key employee in it at all may be part of the aggregation group.