TOP HEAVY TEST

[Guest JB2]

In the following example, what would be the correct top-heavy contribution?

1998 Top-heavy contribution required: 3%

1998 Profit sharing contribution: 1%

1998 QNEC contribution: .5%

1998 Reallocated forfeitures (all ee's): .5%

Does the employer make a 1.5% or a 1% top-heavy contribution?

We have been operating the plan where reallocated forfeitures are only used to determine the minimum top-heavy contribution, but they are not used to satisfy the funding requirement. We are doing it this way because forfeitures are an employer contribution received in a prior year and were accounted as a contribution in a prior year. But now am confused by Reg 1.416-1, M-7.

[LCARUSI]

M-7 seems pretty clear that

1)a forfeiture reallocation counts as part of the top heavy contribution. "The sum of contributions and forfeitures allocated to the accounts of non-key..."

2) therefore, your required contribution is 1%