top heavy 401(k)

[Santo Gold]

A 401(k) plan, with only 1 key employee (also the only HCE), became top heavy for the 2005 plan year. The top heavy contribution only has to go to those participants still employed on 12/31/05. If there were 10 non-key participants, and 5 were employed on 12/31/05, while the other 5 had between 501 - 999 hours but were not employed on 12/31/05, would only the first 5 get the top heavy contribution? Would the plan have 410(b) coverage problems since only 50% of the NHCEs are benefitting?

Thanks for any comments

[Guest CharlieLaur]

Is the Key Employee receiving a discretionary contribution?

If the Key Employee is only making deferrals but is not receiving a discretionary contribution, then you do not have a problem with coverage.