Top Heavy minimum exceeds 415

[Guest RRO]

Does a plan have to provide a top heavy minimum benefit even if it exceeds the participant's maximum 415 benefit, or is the benefit limited to the 415 max? What overrides what? Thanks.

[ETA Consulting LLC]

The plan doesn't have to, but the plan's language will govern what to do in this instance.

Good Luck!

[david rigby]

Does anything trump 415?

[ETA Consulting LLC]

Not by statute, but a plan may choose (in limited instances) to continue to allocate and correct the 415 with (let's say) a return of deferrals.

But, you know this already

[SoCalActuary]

Don't see how 20% of pay in a DB plan can exceed 100% of pay. What are your facts?

[SoCalActuary]

If this is a DC plan where the deferral does not leave enough room for the TH min, please tell us. The document should cover that issue by moving the deferral into catch-up or requiring a refund.

[shERPA]

Agree with SoCal, you say "benefit", which implies a DB plan. How does 20% exceed 100%?

[Guest RRO]

My question is for a DB plan and is basically hypothetical. I was trying to see how this might happen myself - could an individual have a higher 5-year average than their 3-year average for instance? Seems unlikely unless consecutive years somehow come into play. Anyway, someone made the statement to me that 415 is the top of the food chain and trumps everything, including top heavy, as David suggests, and I was unable to find anything definitive to support that conclusion.

[AndyH]

415 is one qualification requirement, 416 is another. They must all be satisfied, not one more than another.

[SoCalActuary]

So the real question is why the IRS says 415 is more important. Because they said so, and they have the lawyers to enforce it.

[ETA Consulting LLC]

I didn't realize this was in the Defined Benefit forum. I kept wondering why everyone implied DB.

[Lou S.]

On the DB, I agree with SoCal. Don't see any set of facts where 20% of 5 year comp would ever be more than 100% of 3 year year comp, even with the 10 year service phase in.

On DC, yes if employee contribution approaches 100% of pay, there in therory might not be room for the 3% (or 5%) T-H minimim. Pre-EGTRRA docs most plans had a mechinism to refund employee contributions in that case. After EGTRRA doc you had to correct it through EPCRS, I'm not sure if that change or not in the latest EPCRS release. I thought they brought back refunding deferrals to correct 415 excess as a self correction if done in 401(k) correction time frame (2.5 months after PYE).

Though as AndyH correctly points out you have to satisfy BOTH 415 and 416 so some correction is likely needed if the situation arises whether you self correct or correct through EPCRS.