Top Heavy - Different Eligibility for EE vs. ER Contributions

[Guest Ted Kowalchuk, CFP, CFS,]

A client has immediate eligibility for the employee salary deferral portion of their 401(k) profit sharing plan, but a 1-year service requirement for the employer cross tested profit sharing. The plan is top heavy.

Would a "participant" hired October 1, 2005 that salary defers beginning October 15, 2005 get a 2005 top heavy minimum of 3%, or the 5.2% gateway cross tested contribution, or no employer contribution at all?

Would an "employee" hired August 1, 2004 that never salary deferred get a 2005 top heavy allocation or would that employee need to wait until 2006 for their first top heavy allocation? In this instance I presume they'll need to wait until 2006, but thought I'd double-check to be sure.

[Tom Poje]

plan has immediate eligibility, so everyone is a 'participant'.

any 'participant' who is active on last day of the year must receive top heavy (profit sharing conditions don't matter) it does not matter whether they defer or not.

top heavy is based on full year comp (415 comp), entry dates wouldn't matter.

if you receive a top heavy contribution and the plan is cross tested then you would have to receive the gateway. ee hired in 2004, entered plan in 2004, should get top heavy in 2004.

at that point I think things are unclear because such people are not eligible for the profit sharing, so what do you use for comp? however, you can test otherwise excludables separately, and then that person would not need the gateway, unless you have HCEs in the otherwise excludable group.