Top Heavy in DB/DC Combo Plans

[Dennis Povloski]

Good Morning All!

If a client has a Cash Balance Plan and a Profit Sharing Plan where the Cash balance provides 2% for almost everyone except for a couple older participants, is it possible to kick up their allocations in the Profit Sharing Plan and thus satisfy top heavy for everyone? Possibly turn the Profit Sharing into a Class Plan?

Any help would be most appreciated! Thanks!

[jaemmons]

What does your document say regarding multiple plans and which would satisfy top heavy minimums?

[Blinky the 3-eyed Fish]

You certainly can amend the document to achieve what I think you want. Satisfying the TH minimum when a participant is in both a TH DB and DC plan can be done one of four ways:

1. 2% DB Benefit (not 2% cash balance as you appear to recognize)

2. 5% DC allocation

3. 2% DB offset by DC

4. A combination of the DB and DC that can be shown to equal the 2% DB when totaled and the DC converted to a benefit.

It sounds as if #4 is the one you are trying to meet.

[Dennis Povloski]

So if we tried for #4, we couldn't just dump 5% in the DC. We would have to see what DC allocation would bring these people up to the equivalent of the 2% DB?

[Blinky the 3-eyed Fish]

Well if you are trying for #4, well then you are trying to save in costs to the non-keys by utilizing the DB benefit the non-keys are receiving, so yes, you would see what DC allocation is needed. If you just contributed 5%, well that would meet #2 and certainly wouldn't be an attempt to meet #4.

[Dennis Povloski]

Since this is a pretty small plan (12 participants), then I guess what we really need to determine is if it would cost more to bump up the allocation to the three participants that did not get a 2% accrual in the Cash Balance or to just give all the non-keys 5%.

Since the three participants not getting enough to satisfy top heavy are pretty old, their contributions would need to be kicked up significantly to get us to that level.

This is actually a proposal that we are working on. Is this something that you think is covered with standardized language (that will allow us to use comparability to satisfy top heavy in this manner), or does this typically need special language and a determination letter?

Thanks again for all your help!

[Blinky the 3-eyed Fish]

It is standard language in our document.