Top Heavy contribution required

[katieinny]

An employer is required to make a top heavy contribution for 2008, but the economy has hit this business very hard. They've downsized to only a handful of people and are barely making ends meet. The owner no longer takes a paycheck. There's no way the employer can make the TH contribution. They are probably going to terminate the plan, but that won't help for 2008. Are there any options?

[jpod]

Doubt it. Even if employer was willing to allow the plan to be disqualified, that won't eliminate its obligation to make the TH contributions. Failure to do so would give rise to a cause of action under Title I of ERISA, or under state contract law if this is not an ERISA plan.

[katieinny]

jpod: I thought that was probably going to be the answer, although I have to believe that with economic conditions the way they are, this must be a problem for many employers. I was hoping for some relief.

[Tom Poje]

are you saying despite how bad things are, the HCE still deferred at the beginning of the year? no deferrals, no top heavy, or maybe put another way, at what % of comp do the key people have?

[katieinny]

Tom: The top heavy contribution is for 2008. The owner did defer during 2008, but stopped deferring very early in 2009 when the bottom of his business fell out. I'm hoping what little he contributed earlier this year won't cause a problem for 2009, but I can't think of any way to help him out for 2008.

[rcline46]

The owner needs to amend the plan so that he/she can take a taxable distribution/loan/hardship, give the money to the company to pay the Top Heavy.

[katieinny]

Hmmm. Maybe, but it's a prototype document and he's in his 40s. I don't think he's financially able to pay back a loan, but I'll ask. A hardship won't meet the safe harbor reasons, but maybe we could permit in-service distributions after money's in the plan for 2 years?

[rcline46]

Not for deferrals, but could for all other monies, including earnings.