Top Heavy Benefit

[mming]

We've come across a Corbel document that seems to define the years of service to be counted for the top heavy minimum benefit as years while the employee was a participant. It's been a while since I've had to do such a calc, but I seem to recall that all years of service need to be counted for TH min benefits, even those before the employee was a participant - isn't that correct?

Also, the actuarial equivalence in this doc is defined as the "applicable mortality table as prescribed by the Secretary of the Treasury" which I believe is the 94GAR table. However, the interest rate is defined as those used for 30-year Treasury securities. Weren't these the interest rates that used to be called the "GATT rates"? I have several bookmarks for referencing these monthly rates, but the rates shown frequently conflict with similarly defined rates published in newsletters. Can anybody recommend a website that reliably reports the rates needed to calculate such lumps sums?

[Andy the Actuary]

The IRS position is you consider the same years for top-heavy service as you do for regular benefit service. Hence, if only years of participation are counted for benefit calculation purposes, then only years of participation need be considered for top-heavy purposes. IRS Announcement 95-33 outlines the audit procedures and in particular states, "a plan may disregard a year of service [for top-yheavy purposes] for an employer in which the employee did not participate in the plan, unless the employee received an accrual in that year." Of course, IRS Reg. 1.416-1 M4 (adopted in 1984) says you need only credit benefits while a participant. This implies you only need consider years of participation as top-heavy service irrespective of whether the plan counts pre-participation service for regular benefits calculation. Which IRS position do you prefer?

For the GATT interest rates, see http://www.irs.gov/retirement/article/0,,id=96450,00.html

[Guest merlin]

We use the Corbel volume submitter plan and routinely write our plans with the top heavy minimum based on participation, regardless of the regular plan accrual. I was initially uncomfortable with this approach, for the reasons Andy cited, but it was blessed by Corbel and we've gotten FDLs on all such docs.

[John Feldt ERPA CPC QPA]

ditto.

[AndyH]

I'm surprised to read this. I thought it was fairly clear that the top heavy service needed to be consistent with benefit service, except perhaps before 1984 or the plan's effective date. But the again most top heavy plans that I see use participation for benefit accrual.

[SoCalActuary]

If you have a participant who has earned credit within the plan year, you must also credit them with top-heavy service. But the benefit credits granted before becoming a participant (hence based on all service with possible past service caps) is not a required top heavy credit.

If the plan is not top heavy for a particular year, you do not have to grant top-heavy credit.

In a DB plan, once you have granted 10 years of top-heavy, you don't grant any more.