Top Heavy Aggregation

[KJohnson]

A law firm has a top-heavy profit sharing plan that excludes associate attorneys but passes coverage. It begins a separate 401(k)plan for elective deferrals only, allows associates to particpate, but also allows key employees to participate. The plans, on an aggregate basis are top heavy.

1) I assume the firm now have to make a 3% contribution for associates into the 401(k) plan. Is that correct?

2) Is there a way around this prospectively?. It does not appear that the 401(k) can be terminated and a new plan started includng associates/non-keys only because of the successor plan rules combined with the fact that there is an existing profit sharing plan covering more than 2% of those who were eligible for the 401(k).

3) If the 401(k) Plan was "frozen" so no future deferrals were allowed, would a top heavy contribution still be required because of the frozen plan's aggregation with the profit sharing plan and the fact that keys are getting 3% or more into the profit sharing plan?

4) If you prospectively eliminate participation of the keys in the 401(k) would you then have to wait 5 years for mandatory aggregation not to apply?

5) Any other ideas?

[This message has been edited by KJohnson (edited 02-25-2000).]

[John A]

Unfortunately, my answers below are just educated guesses, but for what they're worth:

1) I assume the firm now have to make a 3% contribution for associates into the 401(k) plan. Is that correct?

Yes, that's correct.

2) Is there a way around this prospectively?. It does not appear that the 401(k) can be terminated and a new plan started includng associates/non-keys only because of the successor plan rules combined with the fact that there is an existing profit sharing plan covering more than 2% of those who were eligible for the 401(k).

I don't know if there's a way around this prospectively.

3) If the 401(k) Plan was "frozen" so no future deferrals were allowed, would a top heavy contribution still be required because of the frozen plan's aggregation with the profit sharing plan and the fact that keys are getting 3% or more into the profit sharing plan?

Yes.

4) If you prospectively eliminate participation of the keys in the 401(k) would you then have to wait 5 years for mandatory aggregation not to apply?

I don't know.

5) Any other ideas?

No.

I'm sorry I can't be more helpful on these.