Top heavy determination: what parts of the accounts have to be counted

[richard]

For a company that has a 401k plan (with 401m company matches and after tax contributions) and a money purchase plan, which of the following "account balances" are included in top heavy testing? Are there any options?

1. Employee pre-tax deferrals (plus investment earnings

2. Company matches (plus investment earnings)

3. Employee after tax contributions (plus investment earnings)

4. Employee Rollovers (from a qualified plan of an unrelated company to this 401k)

5. Defaulted loans

Of course, the money purchase account balances are included.

Thanks

[LCARUSI]

You include:

1)pre-tax deferrals + earnings

2)company match + earnings

3)ee after-tax + earnings

I'm not 100% certain about the defaulted loan, but I am guessing you include it as long as it has not actually been distributed from the participant's account.

You don't include rollovers from unrelated companies which were accepted by this company after 12/31/83. You do include rollovers prior to 1/1/84.

[Tom Poje]

The defaulted loan is treated the same as a distribution, so you would count it for five years. (Either from determined date of distribution, or if earlier, from employees date of termination)

The match contribution gets counted, but depending on whether it is a required match or discretionary can effect your answer.

see 1.416-1 Q & A T-24 "a defined contribution plan not subject to section 412 minimum funding requirement needs to include only contributions deposited before the end of the determination year" If match was discretionary, I would assume it was deposited after the end of the year, and since it is not subject to minimum funding, I would hold it does not get 'counted' the 'first' year. Normally it wouldn't make a difference, but if you are close to 60% anything is possible.

[Guest LoriWass]

If you have a key EE who has rolled over fund into the plan, it's a "related rollover" and must be counted for top-heavy. If a non-key participant rolls in money from an outside plan not related to the current employer, it's an "unrelated rollover" and does NOT count as part of the top-heavy calculation.

You'll also need to include distributions to key employees made within the past five years in the TH calculation.

[LCARUSI]

You add back in distributions over the last five years for all participants, not just key employees.

[Guest JB2]

If a new company starts a 401(k) and the key owner rolls money from a previous employers plan in which he was not a key employee, does this treated as a related or unrelated rollover?

[Guest Tom Freeman]

I know that distribution are to be added back for top heavy determination. However, if there are ineligible contributions distributed during the year, are they added back for distribution? My opinion is no however I could see the IRS questioning this if they look at the top heavy test and compare this to the distributions on the 5500.

Any thought?

Doug