Top Heavy Minimum for Terminating Plan

[Guest RayLovesTrini*]

How do you calculate a Top Heavy Minimum on a Plan that is terminating (shutting down) midway through the year? Technically the Top Heavy minimum is based on "end of year balances". But if you cannot shut down a Plan until the balance is at zero, how do you "go back" and calculate the TH Minimum - Is freezing the Plan an option?

[cpc0506]

Chose a date that the plan will end. Use compensation to that date to determine top heavy minimum due.

[Tom Poje]

Kathy is right on the point.

At the 2010 ASPPA Conference Q and A #3

DC plan is top heavy and has a plan year ending 12/31. The plan terminates on September 15, 2010. Normally, TH minimums are provided only if the employee is employed on the last day of the plan year. (Assume that there are salary deferrals during the year so that, if a top heavy minimum is required, it needs to be made.)

(1) For the 2010 plan year, is 9/15/2010 treated as if it were the last day of the plan year, so that only non-key employees who are employed on that date are entitled to a TH minimum?

Answer

(1)Of course, if there is no employer contribution, there would not be an obligation to provide top heavy minimum contribution. But, if there were contributions to keys during the year, including elective deferrals, there is a top heavy minimum based on compensation and employment through 9/15/10. Plan must liquidate within a reasonable time under Rev. Rul. 89-87 or else 9/15 date may not be reasonable. There is effectively a short plan year for top heavy purposes.

If assets aren't liquidated, then the IRS would view the plan as not being terminated, so then you would have to use comp through the end of the year, if I understand things correctly.