Top Heavy Minimums - DC Plan

[PJ2009]

Under the 401(k) plan, key employees averaged deferrals of 4%. The plan was determined to be top heavy and a 3% minimum contribution must be made on behalf of non-keys. But what if key employees had an average of 2% returned to them due to a failure of the ADP test? Would the required contribution only be 2%? I don't believe the regulations address this directly.

My guess is that the entire 4% counts in determining the amount of the minimum contribution. Do you agree/disagree? As you can tell, this employer is strapped and looking for some relief. Thank you!

[Tom Poje]

it doesn't matter what the 'average for the ADP test' is.

what is important is what the highest allocation rate for any 'key' employee is (not an average of all keys). keys are different from hces.

in addition, if there was a match, that would also be included in determining what a key employee received.

now, if some of the return for a failed ADP test is treated as a catch-up, those amounts would not be counted toward determining what an individual received, otherwise the returns are counted.