Permitted Dispairy

[Guest RSpecht]

I was recently asked the question if permitted disparity can be used to pass ADP and/or Top Heavy testing.

I have a 401(k) plan client who has NO intention of ever putting company $ into the plan. Because of that they have never allowed HCE's into the plan. Now some of their move vocal HCE's are getting antsy and we need to search for a solution. Again, the employer will NOT contribute any money.

Once of the partners at my firm mentioned something about permitted disparity. Does any know if this can apply in this situation?

[My 2 cents]

Pretty sure that you cannot use permitted disparity to determine if a plan is top heavy, and suspect (don't do 401(k) plans or their testing) that ADP testing can't use it either.

Becoming top heavy could become a problem for an employer of this sort (since it could force employer contributions), but if they fail ADP testing they just have to spit back some of the HCE contributions (I think), so failing ADP would not endanger the employer's avowed disinclination to contribute.

Technically, the employer is putting money into the plan, since all salary reductions are characterized as employer contributions.

[david rigby]

TH determination is based on accrued benefits (DB) and/or account balances (DC). No imputing of anything.

However, don't forget that Key Employee is not the same definition as HCE.