Employer Matching Contributions Used as Top Heavy Minimums

[Guest Larry McNamara]

I have a plan with an 11/30/99 plan year end.

It is top heavy for this year but will not be for next year. Top heavy minimums only go to non-key participants. Can I use the entire match to the non-keys and use prior year testing to pass this years ACP test and still use current year testing for the plan year ending 11/30/00?

[Guest]

my initial reaction was that your logic seems possible, a side effect is that you are 'stuck' using the current year method.

upon further consideration, I have misgivings.

if all the current year match of the non-highlys are used for top heavy, then for purposes of match coverage I think you have HCEs benefitting in the current year, but no NHCEs.

I have a problem with that, I think the IRS would too. I wouldn't want to push it.

if you could pass coverage, I think it is possible, but....

[imchipbrown]

Matching contributions can not be used for Top Heavy purposes. I'm at home, so don't have a cite handy. If it's in doubt, just post "I doubt that!" and I'll find the cite tommorrow.

[LCARUSI]

Chip-

I doubt that.

Matching contributions can be used to satisfy the top heavy contrib requirement but only to the extent they are not also being used to satsify the 401(m) Test

[This message has been edited by LCARUSI (edited 02-14-2000).]

[Guest Paul McDonald]

The plan document may bar the use of matching contribs to satisfy TH but the code and regulations do not bar it. I believe you also face a Catch-22 that if take it out of one test in order to use them in another for the Non-Keys (most likely NHCEs) you face a high probability of failure of your other testing as your HCE's percentage will be too high.

I know of many plans that assumed that the match would be used to satisfy TH and discovered that the plan document prevented such use. They wound up filing under one of the voluntary correction programs and had to ante-up the TH money for the Non-Keys.

[Guest Mike Kimball]

see reg 1.416-1, Q & A M-18, M-19 & M-20

[Guest Phil L]

I agree that the 416 Regs specifically allow match to be used towards satisfying the T-H minimum contribution. However, two items are worth noting.

First, the match used to satisfy the T-H contribution can't be tested under the 401(m) test, it must satisfy 401(a)(4).

Second, a plan document would have to allow the match to be used to satisfy the T-H minimum contributions. You won't find such a feature in any prototype document because the IRS specifically prohibits the use of such a feature in a prototype document. See the LRMs (Listing of Required Modifications published by the IRS).

Of course, if you are using an individually designed plan and your plan document doesn't contain language to the contrary, you can then use the match to offset your T-H minimum required contribution.