Top Heavy

[Guest Sagamore]

I have a prospect that has a Profit-sharing plan that is Top Heavy. They want to start up a 401(k) Plan. Two of the Key EE's are over 65 (one is 70). They have not made a contribution in over 3 years. Is there any hope here for the Key EES's being able to contribute without having to make an Employer contribution. (other then having the two Key EE's past 65 taking their money and then waiting for the 5 year look-back running out)

[Ervin Barham]

Not really, if they want to keep the current plan and just add a 401(k) feature.

Before amending the plan to allow in-service withdrawals on the HCE's, you might want to look at a safe-harbor 401(k) where they make the 3% non-elective contribution instead of a match or even a cross-tested plan. In certain cases, the same contribution can be used twice (top-heavy and cross testing).

Of course, if the reason they have not contributed is because they have no profits, then that strategy might not work.

You may also want to look at a simple 401(k) (if they qualify) to see if that meets their needs.

If you are not comfortable doing this analysis, then are consultants and the like in your area who can provide that information.