SH Match, Top Heavy, Integrated PS

[ogilviesann]

We have a SH plan that is top heavy. They have only put in the SH match since amending to add 401(k) provisions. This year the CPA wanted to put in a $7000 PS. This contribution amount is not sufficient to integrate. Can we reduce the PS for the owner and his spouse so that all of the non-keys get the TH minimum or can we allocate the $7000 on a pro rata basis and then increase the PS for those who didn't get the full 3% with the prorata allocation and SH Match. I have reviewed the plan document and it only addresses when there is more than necessary to integrate, not less.

[12AX7]

You would need to allocate according to the terms of the plan, and increase contributions necessary to meet the TH minimum contribution.

[Lou S.]

Terms of the plan should indicate if you off-set the TH minimum by match recieved or not. And yes once you make any allocation it has to satisfy top heavy.

[Tom Poje]

if the owner or spouse deferred you have already set things in motion. a top heavy is due unless there are no other contribution.

Plus it is possible (I think) the document could say 'all receive top heavy' not just key

[ogilviesann]

The owner's spouse did defer, so we know that the TH minimum kicks in. The TH minimum only goes to non-key and the SH Match does count toward the TH minimum. The plan is integrated though and we just need to know if it's acceptable to allocate the TH Minimum first and then allocate the balance of the $7000 left to everyone else on a pro rata basis. The $7000 contribution is small, so it won't fully integrate.

[ETA Consulting LLC]

No. The TH minimum would kick in after all other contributions have been allocated; so you may have to do some math to back into the additional amount necessary to ensure those individuals who would otherwise not have met the TH minimum will receive the 3%. You have a couple of distinct 'definitely determinable formulas' operating here. 1) Is the integrated formula which "may" read to provide 3% first. You should follow the formula. Based on the comments, it likely does not provide a change; so you'd probably end up allocating only $6,000 (or $6,500) under that formula. Your math will determine this amount. 2) The TH minimum would likely say that after all allocations have been provided under those other formulas, any eligible employee who is employed on the last day and failed to receive the TH minimum (likely 3%) will receive the additional amount necessary in order to meet that minimum. You would have, "mathematically", determined that amount; and would then allocate it to only those individuals.

Good Luck!

[Bill Presson]

Awful lot of work for a $7,000 contribution. Any way you can convince them to not do it?

[BG5150]

What does the document say about the allocation? Two-step or 4-step. You'll find your answer there.