Top Heavy Minimum/401(m) Matching

[Guest datalife]

I recently remember reading that matching contributions can be used to offset the top heavy minimum benefit requirements. Does anyone use matching contributions to offset top heavy minimum benefits. I have read the regs and they seem to state that you cannot offset the TH minimum benefit with the match.

Thank you for your response.

[Disco Stu]

You'll want to review your plan document for more specific guidance, but in general...you can use match to satisfy the TH minimum, but any match used for this purpose can't be used in the 401(m) test. This can create problems with the 401(m) test if you are only giving the TH contribution to non-keys.

Sorry, but I don't have any cites at my fingertips for this. Someone can feel free to plop one in if they want.

[Tom Poje]

1.416-1, M-19

but remember:

standardized master/protypes can't use this option

another reason to avoid standardized plans!

[John A]

IRS regulation 1.401(m)-1(f)(12)(iii) says, in part, "For plan years beginning after December 31, 1988, a contribution or allocation that is used to meet the minimum contribution or benefit requirement of section 416 is not treated as made on account of an employee or elective contribution and therefore is not a matching contribution." This led me to believe that any "matching contribution" could not be used to satisfy top-heavy since any contribution used to satisfy top-heavy would, by definition, not be a matching contribution. However, 1.416-1 M19 Q&A states, in part, "if a plan uses contributions allocated to employees other than key employees on the basis of employee contributions or elective contributions to satisfy the minimum contribution requirement, these contributions are not treated as matching contributions for purposes of applying the requirements of sections 401(k) and 401(m) for plan years beginning after December 31, 1988. Thus these contributions must meet the nondiscrimination requirements of section 401(a)(4) without regard to section 401(m)." This seems to imply that it

is possible to use the match (or a portion of it) to satisfy the top heavy

requirement, but any match used to satisfy top heavy cannot be used in the

ACP test. Therefore, any match used to satisfy top-heavy must be tested under the general test to make sure

the match used for top heavy is non-discriminatory. Since the top heavy

contribution is usually given only to non-key employees, it will generally

pass the general test, but often causes a problem with the ACP test. Is anyone aware of any additional guidance on this issue?

[John A]

Tom,

Can you give me a cite for master/regional prototypes not being able to use this option?

Thanks!

[Guest]

believe it or not, I found the cite (thank you Erisa Outline Book)

rev proc 90-21, 5.10, 1990-1 C.B. 499.

(I didn't actually look it up, but what the heck)

[John A]

Thanks, Tom. I really appreciate the cite!