Top-heavy plan that fails ADP test - help

[Guest MikeD]

If a Plan fails the ADP test and is also top-heavy, when do you determine the rate of the top-heavy minimum contribution? Here is a hypothetical. 401(k) profit sharing plan with no employer contributions for the year. Under ADP, HCEs are allowed to defer 1% of pay; however, the HCEs (including the key employees) deferred more. One key employee defers 10%. The Plan fails the ADP test, so refunds are due to the HCEs. Assuming all key employees would be below 3% after the refund, is the top-heavy minimum the lower number or is it 3% because the highest rate for a key was 10% before the refund?

I have never run into this situation. Any thoughts?

[K-t-F]

If the HCEs receive less than the 3% TH min you give the NHCEs the same lesser %

[Guest MikeD]

If the HCEs receive less than the 3% TH min you give the NHCEs the same lesser %

I understand...however, when do you determine if the Key Employees received more or less than 3%? Before or after the ADP refund?

[Tom Poje]

sorry. you cant get out of it. top heavy % is determined before distribution of contributions.

Q # 29 at the 2004 Fall ASPPA conference

[Guest MikeD]

sorry. you cant get out of it. top heavy % is determined before distribution of contributions.

Q # 29 at the 2004 Fall ASPPA conference

Thanks, Tom. I thought that was the answer, but wanted to verify (and had no idea that it came up at ASPPA).

[Tom Poje]

well, of course, the IRS comments always carry the caveat that they might not necessarily represent an actual position, but I figure in this case it seems pretty reliable.

[Guest MikeD]

well, of course, the IRS comments always carry the caveat that they might not necessarily represent an actual position, but I figure in this case it seems pretty reliable.

I agree. I would have gone with that answer in the absence of anything else anyway. Thanks.