Top Heavy

[Randy Watson]

Is there any authority out there for doing a top heavy determination on an accrual basis rather than a cash basis? For example, assume that a 401(k) plan is top heavy in 2004 but the employer did not make the top heavy contribution until 2006. Could the employer take this contribution made in 2006 into account in determining whether the plan is top heavy for 2006?

[Dan]

Here is that the "FINAL-REG, PEN-REGS, §1.416-1. Questions and answers on top-heavy plans" says,

T-24 Q. How is the present value of an accrued benefit determined in a defined contribution plan?

A. The present value of accrued benefits as of the determination date for any individual is the sum of (a) the account balance as of the most recent valuation date occurring within a 12-month period ending on the determination date, and (b) an adjustment for contributions due as of the determination date. In the case of a plan not subject to the minimum funding requirements of section 412, the adjustment in (b) is generally the amount of any contributions actually made after the valuation date but on or before the determination date. However, in the first plan year of the plan, the adjustment in (b) should also reflect the amount of any contributions made after the determination date that are allocated as of a date in that first plan year. In the case of a plan that is subject to the minimum funding requirements, the account balance in (a) should include contributions that would be allocated as of a date not later than the determination date, even though those amounts are not yet required to be contributed. Thus, the account balance will include contributions waived in prior years as reflected in the adjusted account balance and contributions not paid that resulted in a funding deficiency. The adjusted account balance is described in Rev. Rul. 78-223, 1978-1 C.B. 125. Also, the adjustment in (b) should reflect the amount of any contribution actually made (or due to be made) after the valuation date but before the expiration of the extended payment period in section 412©(10).

Hope that helps.