Excluded HCEs, top heavy plan

[John Feldt ERPA CPC QPA]

Suppose a calendar year 401(k) plan excludes non-shareholder HCEs from all contribution types. The employer does not apply the top-paid group election.

Suppose an employee is hired in June of 2010 (not a shareholder) and they do not earn enough wages in 2010 to be an HCE in 2011. Suppose they enter the 401(k) plan on July 1, 2011 (after one year of service). Allocations are made to their account for 2011.

Suppose they are paid enough in 2011 to be considered as an HCE in 2012. Starting January 1, 2012, they are excluded by the terms of the plan. The plan is top heavy.

Are the required to receive a top heavy minimum allocation in 2012?

on edit, added: Please assume this plan is not a safe harbor top heavy exempt plan.

[Tom Poje]

my understanding is that since the person is no longer a participant they would accrue no furthet benefit. This would be no different than excluding a division, etc, as long as the change tok place as of the start of the year. if the person had no prior account balance I don't even see how you would include them on the 5500 count - I always wondered if the participant count could actually drop from the end of one year to the begining of the next year and I thibnk you found an example.

[david rigby]

At 1/1/12, the EE is no longer eligible for prospective contributions. Since there is a non-zero account balance, the EE is still a participant.

[K2retire]

The participant count won't drop, because of the account balance from participation in the last half of 2011.

The way I read the OP was not that the HCE was excluded from the plan, but that he was no longer eligible for employer contributions. I think that distinction changes the need for a top heavy minimum contribution to the non-key HCE.

[John Feldt ERPA CPC QPA]

They are also not able to defer anymore starting 1-1-2012.