top heavy allocation

[Gary]

say a 401k profit sharing plan is top heavy.

the employer does not make any discretionary profit sharing contributions for 2010 and the plan though not safe harbor passes adp test by having hce's take back some of their deferrals.

since the employer contribution is $0 (only 401k deferrals made) are they required to make a top heavy contribution?

i didn't think so since the maximum employer contribution for a key employee is $0.

thanks

[Lou S.]

For purposes of determinimg the highest allocation rate of any key employee you have you add in elective deferrals prior to any corrections.

My guess here is you will have a required 3% top-heavy minimum for this client.

edit to add - see Q M-20 of the treasury regs 1.416-1.

[Guest IluvNewComp]

Whether or not a TH is required depends on the highest allocation rate to a key employee. This amount INCLUDES deferrals & match (and profit sharing and reallocated forfeitures). So, if any key ee deferred more than 3%, you are stuck.

[12AX7]

The underlying issue is that 401 (k) contributions are still considered to be employer contributions for purposes of determining if Key EEs received an allocation for the year.

[Tom Poje]

my research says the following (which I made an attempt to put in the book I help edit, so I think I'm allowed to quote myself)

The top-heavy regulations do not directly reference this issue. However, excess contributions, even though distributed, are still considered for purposes of sections 404 (deduction limits) and 415 (individual contribution limit), even though distributed from the plan. This regulation is silent in regards to section 416 (top-heavy). Treas. Reg. §1.401(k)-2(b)(2)(vii)(B). If the excess contributions were recharacterized as employee contributions - these are specifically mentioned as being continued to be treated as employer contributions for purposes of 404, 409 (ESOPs), 411 (vesting), 412 (minimum funding), 415, 416 (top heavy) and 417 (QJSA). [Treas. Reg. § 1.401(k)-2(b)(3)(iii)©]Therefore a top-heavy minimum allocation to non-key employees would be required, at least in that situation. At the 2004 Annual ASPPA Conference the IRS representatives indicated that a top-heavy minimum would be required even if it were returned as an excess contribution. (IRS Q and A #29) A reminder that any such comments in regards to the Q and As might not reflect an actual position of the IRS.

[GMK]

so I think I'm allowed to quote myself)

If not, you can post it as a "hidden" user named Tom6.