Easy top heavy minimum question

[John Feldt ERPA CPC QPA]

An Employer adopts 2 new plans. One is a 401(k) profit sharing plan and the other is a DB plan. Suppose the DB formula provides 0.50% of pay as an accrual (for the non-key EEs of course). In order to use the 50% cushion in the first year, the DB plan includes one year of past service.

The plan documents are written in a coordinated fashion such that the top heavy minimum of 5% of pay is provided as an allocation in the DC plan for anyone who is in both plans.

Under Treasury Reg 1.416-1 M-4, a year of service for top heavy minimum accrual purposes is to be credited in a manner that is consistent with the plan's definition of service for benefit accruals under the regular plan formula.

How is that rule satisified? Must the DB plan provide a 2% minimum accrual for the past service portion of the plan?

[K2retire]

Perhaps I'm not understanding the question, but you said the documents provide 5% top heavy in the DC plan. Why would you need an additional amount in the DB?

[John Feldt ERPA CPC QPA]

Are you saying that the 5% allocation in the DC plan for year #1 of the DC plan is sufficient to satisfy Treasury Reg 1.416-1 M-4? The past service in the DB plan includes one year before year #1 of the DC plan.

If so, that's the answer I wanted to hear, of course.

[SoCalActuary]

An Employer adopts 2 new plans. One is a 401(k) profit sharing plan and the other is a DB plan. Suppose the DB formula provides 0.50% of pay as an accrual (for the non-key EEs of course). In order to use the 50% cushion in the first year, the DB plan includes one year of past service.

The plan documents are written in a coordinated fashion such that the top heavy minimum of 5% of pay is provided as an allocation in the DC plan for anyone who is in both plans.

Under Treasury Reg 1.416-1 M-4, a year of service for top heavy minimum accrual purposes is to be credited in a manner that is consistent with the plan's definition of service for benefit accruals under the regular plan formula.

How is that rule satisified? Must the DB plan provide a 2% minimum accrual for the past service portion of the plan?

Gee, this is a really old question come back.

The year of service definition for TH and for plan accrual must use the same rule, eg, elapsed time vs 1000 hours.

But TH minimums under the regs are only required for years while a participant and while the plan is TH.

Before the plan started, it was not deemed TH, so no TH benefit accruals are required for that period of service.