Top Heavy Rule - Help!

[Jilliandiz]

Ok, I have a cross-tested profit sharing plan only.

A = Shareholders (1)

B = all others - NHCEs (3)

Client wants to make a $2,000 contribution only to the plan. However that does not pass top heavy, b/c it only comes to about .75% of compensation. However, would it pass the top heavy rules if I spread the $2,000 across Group B and gave nothing to Group A....the total contribution then is only 2% of compensation.

Any thoughts???

I always thought it had to be 3% regardless in order to pass top heavy, am I wrong here after all this.

[FAPInJax]

Top heavy does not necessarily have to be 3%. An allocation of equal percentage to all employees less than 3% is permitted depending on your plan document (some documents are written with the requirement of the 3%).

Conclusion: Your allocation to all employees equal to .75% of compensation should be OK.

[Jilliandiz]

But I fail the top heavy testing if I give it to the HCE??? Don't I?

[Blinky the 3-eyed Fish]

Read your document and see what the top heavy minimum requirement is.

[Mike Preston]

1. HCE's have nothing to do with TH. If you must describe something that will fail the TH rules, use "Key EE", not HCE.

2. It is a very poorly drafted document that does not provide that the TH minimum is the LESSER of 3% or the highest percentage allocated to any Key EE.

So, read the document, of course, but if it doesn't say what number 2 above indicates you should, at the least, amend it for the future.