top heavy required aggregation group

[Earl]

Company has a DC plan, all participate for 2003.

Can the DC plan be amended to exclude Key EEs and a DB Plan set up to cover the Keys and a group sufficient to pass coverage/participation/non-disc. without the DC plan still needing the TH min contribution (which would be nondeductible because the DB ded > 25% of pay.)

I have looked and find: "1.416 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."

Its the "4 preceding plan years" that makes me unsure. Would the Keys have to sit out for 5 years and then the DB plan could be set up and not be required to be aggregated?

Or is the 4 year look back a reference to the old Top Heavy look back period and is obsolete post 2002 plan year?

Thanks

[Ron Snyder]

I believe that you may be overthinking this. Why are you concerned with RAG? Because you are concerned with having to provide T-H min benefits? There is no way out of that.

[Earl]

Thanks for the reply.

What I am trying to do is only have the Keys in the DB Plan and to exclude them from the 401(k) Plan.

I think that this will mean that TH mins will NOT be required in the 401(k) Plan.

I think that the RAG applies for determination of Top Heavy status of both the DB Plan and the 401(k) Plan but since there is no Key benefitting in the 401(k) there is no TH min in that plan.

I was thinking that the RAG would apply to determine the TH status and to whom the TH min would have to go. I was thinking that an accrual in the DB Plan would mean mins to all plans in the RAG.

I now think that this is wrong and the minimum would be determined separately by plan.

Does this sound right to you?

[SoCalActuary]

So long as the two plans can stand alone for qualification, the DC plan would not require TH min's in my reading of the reg's. However, your DB plan coverage percentage is probably less than 70% unless you have HCE's who are not Key Employees covered in the DC plan.

If the DB in your scenario used the DC in any way to meet qualification, e.g., 401(a)(4), 410(b), then the DC is in the top-heavy group.

[Earl]

I have:

4 Keys making $500k each

plus

4 Employees making $125k - $200k each

plus

2 staff making $30k - $40k

I want to make no Top Paid Group election (8 HCEs) and exclude Non-Key HCEs.

410b: HCE 4/8 = 50%; NHCE 2/2 = 100%; Ratio % = 200% PASS

401a26: 6/10 = 60% > 40% PASS

Non-Key HCEs can use the 401(k), I will amend the 401(k) to exclude the KEYs, although I think non-Participation would be good enough to avoid any TH min in the 401k plan.

Looks like I have a winner, do you see any holes in this.

Thank you very much for responding and your thoughts.

[SRM]

I believe that you are stuck with a required aggregation group (at least for 4 years unless the top heavy regs are amended) and top heavy minimums in the DC plan because of the regulation that you quoted.

Is it possible for the non-key HCEs to become key (are these HCE officers or could they own more than 1%)?

If it is possible, then you could avoid the top heavy minimums in the DC plan by having the minimums only provided to non keys and the only participants in the DC plan would be key employees.