Fun with Top Heavy

[AndyH]

If a top heavy DC plan (profit sharing and 401(k)) has a dual eligibility provision (i.e. 1 month entry for deferrals, 1 year for profit sharing), a non-Key 401(k) participant must get a 3% PS contribution, right? (Assume a Key Employee gets 10%).

Now assume that the PS plan is permissively aggregated for 401(a)(4) with a DB plan that also has a 1 year service requirement, and the documents say that the DC plan provides the top heavy minimum.

What is the top heavy minimum for a participant who is eligible only for deferrals, 3% or 5%?

[Mike Preston]

No one knows for sure (no court case I'm aware of). However, the "inappropriate duplication or omissions" language of the 416 regs tells me that this person, not being eligible for the DB plan, is entitled solely to the 3%.

[Penman2006]

I agree that it's 3% since this person is not yet in the DB plan.

[AndyH]

Thanks for the replies.

[Lou S.]

I'd agree with the others that 3% would be T-H min in this case.

But if you are aggregating for 401(a)(4) are you going to have any gateway issue if they only get 3%?

[Mike Preston]

Well, I'm not sure what you mean by "gateway issues." Certainly the individual would then be subject to the gateway minimums, if there are any. And if they exceed 3%, then getting just 3% would be a problem.

[Lou S.]

Well, I'm not sure what you mean by "gateway issues." Certainly the individual would then be subject to the gateway minimums, if there are any. And if they exceed 3%, then getting just 3% would be a problem.

Exactly what I meant. Just poorly worded.

[Penman2006]

Although you may be able to put them in an otherwise excludables group and avoid x-testing and gateway.

[Mike Preston]

Indeed.