Top Heavy required? When different elgibility dates for 401(k) and Pro

[Guest William Lehman]

This is becoming more common. Plans with different elgibiity for 401(k) and Profit Sharing. Sceario is this. Top Heavy Plan: 401(k) entry is 3 months of service and Profit Sharing is 12 months. Both have quarterly entry. If an employee is hired in Dec 97 for a 98 plan year, would he need to have the required top heavy contribution?

[Ervin Barham]

Based on my information, the answer would be yes for 1998. The top heavy minimum is made on behalf of non-key employees who are eligible to defer compensation (even if they don't defer).

For purposes of the top heavy rules, 401(k) contributions are counted as employer contributions. Also, a key employee's deferral is taken into account in determining if any key employee receives at least 3%.

Editorial opinion - whether I like or agree with this rule is a whole 'nother subject and my soapbox is closed today.

[Tom Poje]

Ervin is correct. Top heavy minimums are required. eligibility for profit sharing has nothing to do with it. EE is a participant and could have deferred.

[Lynn Campbell]

What would be the result if the Key EE = DDS sets up a separate PS Plan just for himself? He is the only employee who works > 1000 hours/year, and this Plan would have a 1 year of service requirement. His hygienists want a separate 401(k) Plan, with no service or age requirement. The Owner/DDS would not participate in the 401(k) Plan. My reading of the aggregation rules on top heavy indicates that a top heavy contribution would not be needed in the 401(k), since the PS Plan passes 401(a)(4) and 410(B) by itself. Does anyone agree?

[Earl]

not me.