top heavy or not top heavy?

[Santo Gold]

Employer had only 1 key employee and has maintained a SEP for about 8 years. SEP was not funded in 2004 since a PS plan was adopted in 2004. All SEP participants rolled money from SEP into the PS plan in 2004. Key employee rolled over only a small portion of his money.

Should the SEP rollover money be counted towards determining top heavy for the new PS plan in 2004? If so, should the money not rolled over by the key employee be counted towards top heavy as well? For how many years?

If we count only the rollover money, the plan is not top heavy. If add in the key employees money not rolled over, then it is top heavy.

Thanks

[Guest R. Daestrom]

Santo - Here's what I think.

For TH purposes, a SEP is considered part of the required aggregation group. So, for the 2004 PS plan year, you would look at the 12/31/2003 SEP account balances (or SEP cumulative contributions as of that date) to determine 2004 top heavy status for the PS plan.

Rollovers from the SEP into the PS plan are related rollovers and will continue to be a factor in determining top heavy status in future years.

For the key who did not roll over his portion, that amount, I believe, is to be counted for a 5 year add-back period (not 1 year) when determining the PS top heavy status. I'm not 100% certain of this though. A big question is what if the employee simply keeps it where its at (in the SEP IRA) indefinitley. Is it really a distribution and when does the 5 year clock start ticking? Anyone else have any thoughts on this?