Top Heavy Minimum Allocation

[mming]

The testing in a new comparability plan works out to where the 5% gateway for all NHCEs would be OK. There are only 2 allocation groups - the HCEs and the NHCEs. Although the document defines compensation as the amount paid while an employee is a participant, it's my understanding that for top heavy purposes you must allocate 3% of the participant's compensation for the entire year. There are a couple of NHCEs who enter the plan mid-year whose TH min would exceed 5% of comp for 6 months. I'm wondering if I'm looking at this the right way - for testing purposes, their TH min allocation would be about 6% of their 6 month comp. Is this acceptable when all other NHCEs are getting 5%, or would you have to bump them all up to 6%? All help is greatly appreciated.

[Guest careful1]

For testing, you can use comp from DOP, so if the plan document defines the allocation as based on a full year comp, or as in your case for TH, for mid-year new entrants you get a larger testing accrual rate that first year. Your testing comp has to be the same for everyone though. It's not a problem that the mid-year new entrants have a larger testing percentage, in fact it's a bonus for testing.

[BG5150]

If I recall, you would keep everyone else in the group at 5% and give mid-year entrants an additional contribution to get them up to the 3% of total comp.

I don't remember if I had to do an 11g amendment to accomplish that (I don't think so, becasue the amount above and beyond the allocation group is a required contribution, not discretionary.)

[Mike Preston]

It depends on what the document says. Some allow for a special allocation in order to satisfy the top-heavy minimum. Others don't. If your plan does not, then everybody would need to be lifted up to the same percentage of plan compensation in order to satisfy the plan's terms.