Top Heavy Contribution

[MBCarey]

In a top heavy DC plan, am I correct in saying that if a 3% contribution is given to the non-key employees, then the key employees can defer the plan maximum, maximum per prior year NHCE %, or the yearly maximum of 12,000 whichever is less?

[Tom Poje]

Regardless of whether the plan is top-heavy or not, the plan must pass ADP/ACP testing.

Thus, if no one else deferred in the prior year, the HCE could not defer in the current year.

Or if current year testing was used, then if the NHCE is 0, the HCE could not defer either.

Even if a top heavy is provided.

The exception would be a safe-harbor 401(k), but that would not be a top heavy plan unless other contributions were made.

or

The first year of a plan, since you can use 3% as prior year for testing.

The top heavy could be treated as a QNEC (if the document so allows) and could be used in testing as well.

[MBCarey]

Tom, I understand that the plan has to pass the ADP/ACT test, but to satisfy top heavy minimums. THis plan passed it ADP/ACT test. Can we give a minimum 3% as a QNEC or ER contribution to the NHCE's to satisfy TH or do I have to give more because the Key employee deferred more?

Marybeth

[Blinky the 3-eyed Fish]

The rule for satisfying the TH minimum in a DC plan is the lesser of 3% or the highest key employee's percentage of annual additions. In this case, the 3% would be your limit.

[R. Butler]

I am not sure that this answers your question, but generally a non-key's allocation in a top heavy plan must be the lesser of 3% or the allocation for a key employee. (See §416c(2), I think).

I get a little lost in your facts, but if the top heavy eligibles are getting a 3% employer contribution, you have satisfied the top-heavy minimum contribution requirements.

Hope that answers your question.

[david rigby]

Perhaps the original question is really asking about a safe-harbor plan?

[MBCarey]

Thanks everyone. Sorry if I confused all of you.

This is not a safe harbor plan.

I think the following is the answer that I was looking for

was the following

"non-key's allocation in a top heavy plan must be the lesser of 3% or the allocation for a key employee"

Marybeth

[R. Butler]

My post should have said the non-key's allocation in a top heavy plan must be the lesser of 3% or the highest allocation received by a key employee.

You probably know that, but I was careless with my typing and I just want to clarify.