Top Heavy - Change in ownership

[Guest joshmeltzer]

Typical law firm situation:

A law firm has an Associate plan with no Key employees and Partner + clerical plan. An associate will become a partner during the year. This will result in a Key employee in the Associates plan and require a Top Heavy contribution in the next year.

If the Associate is moved to the partner plan along with his/her entire account balance immediately upon becoming a partner does this avoid the need to include the Associates plan in the RAG and avoid the TH minimum in the Associates plan?

What if the Associate was moved just before he received his/her ownership interest?

Thanks for any opinion.

[ESOP Guy]

In most but not all cases the T.H. test is across all plans.

But if somehow you could test the two plans separately I don’t see how you can just transfer the balance from one plan to another.

What is the reason for the transfer? Just because one moves from an eligible class to an ineligible class doesn’t mean you lose your right to participate in the first plan. And while both plans are with the same company and in many ways it is all “one happy” family I am just not sure one can make that transfer.

Do the documents allow for this kind of transfer?

I have had clients with union and non-union plans. If someone moved between groups they always just had balances in both plans.

[rcline46]

This is a very common design, and the associates plan has a class exclusion of 'key' employees. There is no problem transferring the account from one plan to the other in a ttee to ttee transfer. Since no key employee participates there is no problem with TH.