Is a Top heavy contrib needed?

[BG5150]

We have a plan in which only the HCE's deferred, even though NHCE's were eligible. Therefore, all of the HCE (and, thus, key EE's) contribs will be returned. The plan is also top heavy.

My question is: When is the rate of the key EE's determined? Before the refunds are taken? Or after?

if it's after, I'm guessing no TH contrib is necessary, since the key EE allocation will be zero.

(I know this is just the tip of the problem; we're tackling this first.)

[Tom Poje]

maybe.

if you get real lucky, all HCEs are catch up eligible, and no one deferred over 5000. then there would be no top heavy as catch ups don't count toward determining the % an HCE received.

otherwise, yes, you have to give a top heavy

[J Simmons]

Tom,

I'm a bit confused. I didn't think an over 50 employee could do catch up ($5,000) until he or she first topped out the 402g amount ($15,500 for 2007). If the HCEs can't do the 402g amount because of the nonHCEs' ADP being zero, then the HCEs (even if all over 50) could not do catch up.

Did the IRS reverse its position on topping out the 402g amount before deferrals are 'catch up'?

[Tom Poje]

since hce's were the only ones who deferred, plan fails adp testing. amounts to be refunded due to ADP failure could be treated as catch-ups.

[Bird]

J Simmons-

Catch-ups are determined as a result of exceeding a limitation - couid be 402(g), could be 415, could be a percentage limit from ADP testing. So if an HCE deferred $5,000, and the ADP limit is 0 since no NCHEs deferred, the $5,000 becomes a catch-up.

[J Simmons]

Thanks, Tom and Bird. That's an opportunity I hadn't realized before.

[wsp]

So you DO have to give TH contribution even though 100% of ADP was returned (assuming no catchup eligible HCE's)? Seems a bit excessive to me. Telling the HCE essentially that not only does he not get anything but he has to contribute to employees anyways would lead to about half my clients into terminating their plans.

[Guest dbvail]

Harsh but true as far as I know. That is why Safe Harbor was created. A small plan is better public policy than no plan., but it still must be in compliance. Our small plans make good use of safe harbor. Good luck.

[TPAnnie]

Harsh but true as far as I know. That is why Safe Harbor was created. A small plan is better public policy than no plan., but it still must be in compliance. Our small plans make good use of safe harbor. Good luck.

I'm sorry to steal the thread, but I didn't feel mine was worthy of it's own question...I'm trying to better understand plan design. Would this be a good situation for a SH Match?

All HCE's could potentially defer $20K (if catch-up eligible), get a SH Match of 4%, a discretionary match of 4%, and still meet top heavy with the non-keys receiving nothing if they did not defer, right?

thanks!