Top heavy surprise!

[Guest CMaples]

I was notified in 1/99 that our plan was top heavy as of 12/31/97 due to highly compensated employees having more than 60% of the assets (therefore requiring top heavy contribution during 1998). Our services provider faxed me two letters they say were mailed last year, but I did not receive either one and they are not addressed to me (I am the Plan Administrator). We could have adjusted the plan as of 12/31/97 but now they say it is too late. Is there any alternative to not making the required 3% contribution for 1998???

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CFM

[Ervin Barham]

You don't say what kind of plan you have, so here's some general information:

There is not a whole lot you can do with this once you become top heavy. If this is a profit sharing plan, if your plan document allows, you can elect to make no contribution or a less than 3% across the board contribution.

If this is a 401(k) plan, you will have to make the 3% contribution if one key employee deferred at least 3%.

If it's any consolation, you are not the first employer to complain and wail about the top heavy contribution. We've been waiting since 1986 for someone to figure out this is a mess and repeal this.

[Dave Baker]

Does your company sponsor any other plan? If so, maybe it's already providing contributions of at least 3% of pay and maybe the top-heavy rules have been satisfied.

[Chester]

Don't forget that the minimum contribution is just one facet of the Top Heavy requirements--vesting is the other shoe to drop and you must provide vesting at least as rapid as the 6 year graded schedule or 3 year cliff vesting--your plan document should indicate what vesting schedule applies in the event the plan becomes top heavy.

[Guest EDSAADE]

I hope that your service provider (TPA) actually stated the plan was top heavy because > 60% of assets belong to the "key employees" not the Highly Compensated Employees as you stated. In some instances they can be the same, but they do have different criteria.

You should review which participants were determined aa "key employees" with your service provider.

[This message has been edited by EDSAADE (edited 03-03-99).]