Top-heavy question originally posted by EScott 1/24/99 - one plan in '

[Dave Baker]

Say you have a 401(k) that is 59% top heavy on 12/31/97. You add a DB on 1/1/98. The DB has no accrued benefits as of 1/1/98, but would definitely be TH on its own on 12/31/98. Since you have to calculate the top heavy percentage using both plans, what date do you use for the DB?

Related question - say this combo is TH now or eventually, and there are people in the 401(k) who are not covered by the DB (both key and nonkey). Say you'd prefer to use the DB minimum for those in the DB. Can you provide the TH for the nonkeys who are only in the 401(k), without running into other problems?

Thanks.

I saw a similar question on PIX, although the situation was reversed. I'd like opinions (or facts) from others.

[mwyatt]

Look to the Top Heavy Regulations for the answer to part 1. I assume the first question is regarding TH testing for the 1998 plan year. Determination date for the 401(k) plan is 12/31/97 (last day of preceding plan year). DB plan would ordinarily use a determination date of 12/31/97 (computed using the actuarial valuation date occurring during 1997 - so 1/1 if BOY val, 12/31 if EOY val). As you point out, there are no benefits as of 12/31/97 in the DB plan (since not effective until 1/1/98). However, there is an exception for first plan year. I believe for 1998 you would use PVAB under DB plan as of 12/31/98 (computed as if plan was not TH). In future years you would go back to 12/31 of year preceding testing year. (Just a thought: what if DB benefits originally computed w/ no TH minimum @ 12/31/98 put plans in TH status, but then when you recompute 12/31/98 DB benefits including TH Minimum the percentage slides back to under 60%? - doubt the regs cover this situation ).

I think you need to look at the regs again for combined coverage. Your plan language specifying which plan provides TH min only applies to those participants covered under both plans. If a group is in the 401(k) but not in the DB, the 3% minimum applies; again, a careful reading of the final TH regs (albeit back to 1985) should provide the solution.

As an aside, I had posed another question concerning TH that noone wanted to take a stab at, so I'll restate it again.

Ran into a plan that is TH, but as part of their eligibility provisions provided that a certain classification of employees was excluded from participation (surprise, surprise it is a medical practice). My concern is that these excluded employees have generally satisfied the standard 21 and 1 YOS requirement and would participate if not for the excluded category of employment. The TH regs reference that employees who are not participants because they have not elected to defer or who have not reached a given level of compensation (going back to the old excess only days) but have otherwise satisfied eligibility requirements must receive the TH minimum. The excluded class of participants is not directly addressed in the regs but my gut feeling is that these participants should have been receiving the TH minimum. Any thoughts on this matter?[Edited by Dave Baker on 07-27-2000 at 03:59 PM]

[Kathy]

mwyatt

I don't think you have to make a top-heavy minimum contribution for employees who are not participants in the plan. If the plan specifically excludes a class of employees and continutes to satisfy the coverage requirements, these excluded employees are not participants and therefore not entitled to a contribution. If they must be added back to satisfy 410, then they are participants and must receive a contribution if employed on the last day, regardless of hours of service.

[This message has been edited by Kathy (edited 06-15-99).]

[This message has been edited by Kathy (edited 06-15-99).]

[Kathy]

Dave and Escott

When aggregating plans for top-heavy testing you must aggregate plans whose determination dates fall within the same calendar year. The top-heavy test for 1998 is going to be done separately for each plan - the one plan's date is 12/31/97 and the other's is 12/31/98 (for the first year) - and then aggregated for subsequent years. for 1999, they will both have the same determination date.

As for which plan provides the minimum, you better read the document and see what it provides first.