Top Heavy Allocation when changing divisions

[Dan]

I have a plan that tests its divisions separately. During the year, a participant worked most of the year for a division that wasn't top heavy. During the year, he transferred to a small division that is top heavy. Should the allocation be based on full year comp with the company or part year comp with the small division.

[jaemmons]

Is each division part of the same employer (i.e. - controlled group or affiliated service group)? Also, does at least 1 key employee participate in each division's plan?

[Dan]

There was common ownership between the divisions but not to the level of controlled group or affiliated service group. There are key employees in each division but no common key employees.

[jaemmons]

If each division is a separate employer (based upon your reply), an employee who moves from one location to the next would now be employed by a new employer. Unless, there is some other information you can provide, Dan, that would possibly link the divisions together as related employers, comp for the new employer ("small division") for the entire plan year (assuming they are immediately eligible)would be used for top heavy alloction purposes.

[Dan]

Thanks, jaemmons. Each division is a separate company for tax reporting purposes. However, they are separate divisions of a large company. The participant got two W-2's for 2004. My take is to only include his wages with the top heavy division.

[jaemmons]

Based on what you have given, that sounds like the right approach.