IRC416 Top Heavy

[Guest jusducki]

We have an age-weighted plan that tested at 93.15 - a contribution was made for '01 based on the age-weighted formula. Received general audit letter from DOL for the '01 plan year asking for a variety of records, including the Top Heavy report. Question - is there going to be any issue with the testing % of the Top Heavy report and the contribution allocation? (some employees got 12%, some 3 some 1.2, etc.) Thank you.

[david rigby]

One hopes that the plan already contains the appropriate language for T-H minimums. An allocation of 1.2% likely will be a problem, especially if it is not an HCE. However, if there is another plan, the TH minimum can be "co-ordinated" and may be OK.

One hopes that the actual allocation adhered to the plan provisions. If not, expect problems.

[AndyH]

If an HCE received a top heavy minimum that exceeded what the age weighed formula would have produced then you have a plan that must be tested under the 401(a)(4) general test. The age weighed formula, if done correctly, would have automatically satisfied the general test by design, but an aberrant (is that a word?) HCE would alter that result.

Normally it would pass without much trouble, but the test must be done.

p.s great name!

[Steve72]

One practical consideration is that top-heavy issues are normally reviewed by the IRS, not the DOL. Although the DOL may go after the employer for a failure to follow the top-heavy provisions of the document (if there is a problem) it's normally not one of their big issues. Of course, there is always the potential that the DOL could refer the plan to the IRS for its own review, but they usually only do that if there's a PT.

From what I've seen, the DOL normally asks for testing info primarily to see that it's been done.