Top Heavy Testing - Inservice distributions

[Guest Randy713]

For Top Heavy testing, do you account for a terminated participant's inservice distribution when their current account balance is no longer considered?

Here is the situation:

Three years ago a participant takes a hardship distribution. A year later that same participant terminates employment from the company. So when doing the current year Top Heavy test, we no longer consider that participant's account balance due to the termination two year prior. What about that participant's inservice distribution that was taken three years ago, due to the five year Inservice distribution rule?

We are having a little debate regarding the answer, so any sources or links for your answer would be greatly appreciated.

Thank you.

[Tom Poje]

take it one step further. suppose the ee doesn't get paid out his remaining balance until 20 years from now.

would you now include his distribution because you include distributions made during the 1-year period ending on the determination date?

(or does the fact you don't include ees who perform no service for a year override everything?)

[Erik Read]

Tom - your supposed to help, not further complicate the debate.

Randy and I discussed this earlier, and I was flexible, you could convince me either way, as the letter of the regs does not truely accomodate for the situation - as usual.

So - I said test it both ways, see if it helps or hurts, if it doesn't matter, then it's not worht arguing over, take it to a "ask the experts forum" at ASPA or NIPA, and see what they say about it.

But - nooo - he wanted to get the topic board all fired up... so - let's here more.

I like the "no service" then excluded, but, is that for just the participants balance, or for both the balance and the distribution??????

[R. Butler]

take it one step further. suppose the ee doesn't get paid out his remaining balance until 20 years from now.

would you now include his distribution because you include distributions made during the 1-year period ending on the determination date?

Really as of right now wouldn't we revert back to the old rules because this sunsets after 2010?

(or does the fact you don't include ees who perform no service for a year override everything?)

I vote for this.

[Belgarath]

"Three years ago a participant takes a hardship distribution. A year later that same participant terminates employment from the company. So when doing the current year Top Heavy test, we no longer consider that participant's account balance due to the termination two year prior. What about that participant's inservice distribution that was taken three years ago, due to the five year Inservice distribution rule?"

I agree with RButler. I interpret the plain language of 416(g)(4)(E), as amended by EGTRRA, to toss this employee out of the testing mix.