Avoiding Top Heavy Status

[LCARUSI]

I am working with a client with a 401(k) profit sharing Plan which is close to top heavy. A non-key employee just resigned. She has a significant account balance and if she takes a distribution, the plan will definitely be top heavy for 1999 based on a determination as of 12/31/98.

My question is this - can the client defer top heavy status if the terminating employee defers distributionand leaves her account balance in the Plan?

[Dawn Hafner]

It will not matter if this nonkey person takes her distribution or not. When calculating the top heavy pecentage, all prior distributions within 5 years of the determination date must be added back to current balances. IRC 416(g)(3)