Top Heavy Determination / 401(k) Test Failure

[Guest Kevin Mitch]

Never mind I answere dmy own question but did not know how to delete post

[Lou S.]

I have a client who is a few .10s of a percent over the 60% limit for top heavy test determination as of 12/31/10. They have also failed the ADP test for 2010 and refunds are required. Is there any way to exclude the amount of the refunds payable in the top heavy determination to push them under the top heavy limit for 2011. Thanks for any insights.

No the refunds count and will be in the in-service look back for 5 years.

Why not do a QNEC to pass testing (or reduce refunds) and avoid top heavy for an additional year?

[Guest Kevin Mitch]

I have a client who is a few .10s of a percent over the 60% limit for top heavy test determination as of 12/31/10. They have also failed the ADP test for 2010 and refunds are required. Is there any way to exclude the amount of the refunds payable in the top heavy determination to push them under the top heavy limit for 2011. Thanks for any insights.

No the refunds count and will be in the in-service look back for 5 years.

Why not do a QNEC to pass testing (or reduce refunds) and avoid top heavy for an additional year?

Thanks. I realized that as soon as I posted. The company has been sold during 2010 and the key employees are no longer owners as of 7/1/10. I'm not clear on how a 2010 QNEC would keep them from being top heavy in 2011?

[Lou S.]

I have a client who is a few .10s of a percent over the 60% limit for top heavy test determination as of 12/31/10. They have also failed the ADP test for 2010 and refunds are required. Is there any way to exclude the amount of the refunds payable in the top heavy determination to push them under the top heavy limit for 2011. Thanks for any insights.

No the refunds count and will be in the in-service look back for 5 years.

Why not do a QNEC to pass testing (or reduce refunds) and avoid top heavy for an additional year?

Thanks. I realized that as soon as I posted. The company has been sold during 2010 and the key employees are no longer owners as of 7/1/10. I'm not clear on how a 2010 QNEC would keep them from being top heavy in 2011?

Persumably a QNEC will be allocated to mostly to non-key employees and might change the TH ratio so it is no longer 60%.

If the company has been sold though a QNEC might be a awfully hard sell at this point but if making say a 0.5% QNEC for 2010 will get them under 60% ratio that might be cheaper than making a 3% contribution in 2011 since I'm guessing at least one key has already deferred more than 3% for 2011.

[12AX7]

I agree with Kevin regarding QNECs after the end of the plan year will not change the TH ratio of the plan. Actual account balances as of 12/31/10 should be used to the best of my knowledge.