Top Heavy Minimums?

[rcline46]

Client has a Safe Harbor 401(k) Plan and just added a companion Defined Benefit Plan. The 401(k) plan would be Top Heavy but is deemed not Top Heavy due to Safe Harbor.

The question is - do we still combine the 401(k) with the DB plan to determine if the aggregated group is Top Heavy? Of course the key employees benefit in both plans.

Unfortunately the 416 regs have not been updated so there is no 'official' guidance, but maybe the IRS has said something at one of the conferences??

[Blinky the 3-eyed Fish]

Think of it more that the DC plan is deemed if of itself to meet the top heavy contribution requirements, not that it's not top heavy. You still need to combine it with the DC plan for determination of the top heavy status of both plans.

[Guest Carol the Writer]

My two-cents worth: the TH minimum becomes 5% of payroll into the PSP, and not 3%. This, at least, is my understanding of TH when there is overlapping plan membership. If an employee is one plan or the other, but not both, then he gets his respective plan's TH minimum (accrual or contribution.).

[SoCalActuary]

Carol points out the short-quick answer.

However, the true answer is that you follow the terms of the plans, in which the method of compliance

with TH rules is elected by the plan sponsor. This might be all DB minimums, or a combination of two, or

comparable plan minimums. 5% might be the right solution, but only if the documents say so.

[saabraa]

You can Google Publication 7002 and Form 8385 for potential help. These are the IRS tools of the trade when reviewing a plan's determination application for the appropriate plan language regarding top heavy. Form 8385 is filled out to show which section of the plan contains the relevant provision. Publication 7002 gives an explanation, including cites, of the requirements. Both tools were revised in March of this year.

If you pretend you're an IRS employee reviewing the 2 plans,

For the DC you stop at Part I of Form 8385, the DC is a safe harbor 401k and therefore automatically meets 416.

Form 8385 needs to be completed in its entirety for the DB; you then see the DC is aggregated in making the determination of top heaviness. You wind up at part IV; the DB plan document must provide one of the benefit minimums provided there.