Top Heavy Plans

[Guest joe22]

I have a client with 3 plans. Plan 1 is a DB plan and covers most employees. Plan 2 is a PSP that covers many HCEs and other staff employees. No one benefits from both Plan 1 and Plan 2. Plan 3 is a 401(k) salary deferral only plan and covers all employees. The plans are top Heavy.

Employee A is a participant in Plan 1 (the DB Plan). He no longer completes 1,000 hours of service. Plan 1 would provide the minimum top Heavy benefit accrual, except however, Employee A doesn't accrue this benefit because he has less than 1,000 hours of service.

Employee A is a participant in Plan 3 (the 401(k) plan).

What Top Heavy minimum benefit does Employee A receive and from which plan. He doesn't satisfy the requirements for the DB minimum benefit, but does satisfy the requirements for the DC minimum contribution.

Any thoughts - please help.

[Guest Carol Writing]

Is he a Key or a Non-Key? You may exclude him from minimum benefits altogether (depending on plan provisions) if he is a Key. You might want to do this if, for example, cost containment of the program were a primary objective.

[Guest joe22]

Thank you. He is a non-key employee.

[Blinky the 3-eyed Fish]

You may get different answers on this. My recollection is that the 416 regs mention that a participant in both a TH DB and DC plan is due either the 5% DC or 2% DB (of course there are the other 2 options that I won't get into). However, the intent IMHO is that the person must satisfy the TH accrual requirements in the respective plans to accrue the TH minimum as a multiple plan participant. Therefore, in your case, the person was there on the last day, but didn't work 1,000 hours, and is due 3% from the DC plan.

So that is my statutory opinion of how the plans are allowed to be operated. Check your document to see if it states something differently.

[Guest penman]

And that 3% in the K plan is going to be a problem if the intention of having no participant be in both the DB and PSP plan is to avoid the 25% of pay 404 limit because that 3% in the K plan will cause the limit to apply.