Top-heavy accruals continuing after the plan falls below 60%

[My 2 cents]

Suppose a top-heavy plan's test percentage fell below 60% but no action was taken to shut off accrual of the top-heavy minimum benefit. Would some sort of corrective action be needed or could the top-heavy minimum just be frozen as of the end of the current plan year? If correction was necessary, what would be an appropriate action?

[tymesup]

It depends what the plan document says. A typical document of ours states that the top-heavy benefit is [only] provided in a Top Heavy Plan Year, so no action is necessary.

[My 2 cents]

To rephrase my question: Suppose that it was discovered that a plan using your typical document that had been funded and administered as top heavy had fallen below 60% in 2008 and stayed there? What would you have to do?

[david rigby]

First, read the document so you understand whether the TH minimum continues to accrue.

Second, make sure you have not overstated (or understated) any participant's accrued benefit.

[My 2 cents]

Presume that (a) the plan contains no language requiring continued accrual of the TH minimum if the plan is not currently TH, (b) the TH percentage fell below 60% 5 years ago (hypothetical - in talking to a company official, you learned yesterday that a former executive vice president who is not an owner had switched 5 years ago to commissioned sales, at no loss of income, but without the executive authority necessary for a non-owner to be considered a key employee irrespective of compensation level, therefore that person became a former key employee), and © all funding calculations and benefit determinations during the past 5 years have been predicated on the plan being top heavy. So TH minimums have continued to accrued, funding has assumed that the plan is in TH status, and benefit payments have been made reflecting accrual of TH minimums after 2008.

What must/can one do? Presume that the most desirable outcome from the sponsor's point of view would be to leave all prior benefits/funding calculations undisturbed and to shut off the TH status as of the end of the current plan year.