TOP HEAVY

[Guest Mike Schwing]

A 12-31-07 plan - deposits $120,000 into the plan for a 2007 profit sharing contribution on 12-28-2007. Because the plan uses participant direction on its contributions the $120k is not allocated to the participants until later in 2008 when the actual determination of who gets what is completed.

For the 2008 top-heavy determination - shouldn't this $120k be included as part of the participant balances as of the 12-31-2007 determination date for 2008 plan year? It is not a profit sharing receivable to the plan at 12-31-07 because it was deposited on 12-28-07.

If $100k of the that 120k is going to go to key employees I don't see how you can't count it as of 12-31-2007 determination date - just becuase you did not have the information to allocate it on that date.

Is this logic correct?

[david rigby]

Hmmm. Seems logical to me, but other readers will have more experience.

But.....for purposes of the TH test, does it matter? Is the plan TH either way?

[Bird]

It absolutely has to be included; it's in the plan. And, if more money is deposited later, it highlights the silliness of excluding receivables from TH determination, as the regs were widely misinterpreted to say for a long time. (i.e. you would have to allocate the $120K, do the TH calc, then allocate the rest of the contribution...it's not impossible but it raises questions about whether the first part should be treated as the only contribution or just a pro-rata share of the total).