T-H Minimum Contribution Under Terminated DC Plan

[davef]

If a top-heavy defined contribution plan terminates prior to the end of the plan year, is the 3% top-heavy minimum contribution for the year of termination based on compensation for the entire year, or just the portion of the year prior to the termination date?

The T-H regulations define compensation as either 415 comp or W-2, neither of which is prorated during the year of termination. Also, the IRS has stated (1995 EA Meeting) that compensation for the entire year is used if a person was a participant in a T-H plan at anytime during the year. Based on this, it seems like a full years's comp is to be used. Is this what others are doing?

[david rigby]

Try this:

The plan year continues until the benefits are actually distributed, not just amended to terminate. The point at which (all) the benefits are distributed will become the end of the last plan year.

[davef]

pax, what if the plan is terminated and paid out within the same plan year? Would this make a difference as to how much comp is counted for purposes of the T-H minimum contribution?