Top Heavy Minimum?

[Dougsbpc]

Suppose you have a small DB plan that has existed for 5 years and has been top heavy all of those years. The plan is not frozen. Assume there are no former key employees. All non-keys have received top heavy minimums of 10% (2% x 5 years).

The benefit formula is amended to reduce the benefit for the one key employee. The key employee benefits are grandfathered of course. The key employee will not experience a benefit increase for years 6, 7, and 8 due to the reduced benefit formula. Is the plan required to provide top heavy minimum benefits for years 6,7 and 8?

Section 416©(1)(B)(i) indicates 2 percent multiplied by the number of years of service with the employer.

Section 416©(1)© defines years of service and 416©(1)©(iii) provides the following exception:

Exception for plan under which no key employee (or former key employee) benefits for the plan year. For purposes of determining an employee's years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a plan year when the plan benefits (within the meaning of 410(b)) no key employee or former key employee.

[Andy the Actuary]

See 1.410(b)-3(a)(2)(iii)©

[Dougsbpc]

Thanks Andy.