Related? Unrelated? Rollover? Top Heavy

[Mr Bagwell]

Background: Sally worked for ABC, ABC adopted XYZ 401k Multiple Employer plan. Sally then opens her own business and adopts the same XYZ 401k Multiple Employer 401k plan. Sally and three employees, to my knowledge, never termed, who knows. Sally and three employees assets are moved from one participating employer to another. No distribution was processed because of the MEP, so no rollover coding on the assets. Sally's assets are substantial, and of course the plan appears to be top heavy for the first year and subsequent years. The plan has since been moved to an individual 401k platform.

Plan document reads:

2.7 Transfer to/from a participating employer. The transfer of a Participant from one Participating Employer to another Participating Employer under the Plan shall not affect his rights under the Plan, and all amounts credited under his accounts described in Article 8, year(s) of Service and Credited Service accumulated under the Plan and other rights and benefits he is entitled to under the Plan shall continue to his credit after such transfer. The transferred Participant will carry with him to his new Participating Employer's Plan his accumulated account balances, vesting and eligibility service, and no termination of employment or One-Year Break in service shall occur as a result of the transfer. However, such transfer shall constitute a termination of employment from the prior Participating Employer only for purposes of ceasing Elective Contributions, Roth Elective Contributions, Nondeductible Voluntary Contributions and Participating Employer contributions for the transferred Participant. Matching Contributions and Non-Matching Contributions for the Plan Year of the transfer, if based on Compensation, shall be determined using the Participant's Compensation with each Participating Employer.

I was not employed at the time this transaction took place......

For top heavy reasons, I would have preferred to have a distributable event so the funds could have been rolled in to exclude the assets from being calculated in top heavy calculation. Under the MEP, the assets just get moved from one employer to another. (See above)

Is this plan just hosed in regards to top heavy? Of course, the TPA, didn't know Sally was owner, so the plan hasn't been top heavy yet.

Anyone see any wiggle room to have the assets excluded from the top heavy calc?

Thanks

Mr Bagwell

[ETA Consulting LLC]

Without reading much into the fact pattern, a MEP is still a single plan; one that is merely sponsored by multiple employers. Being a single plan, you are subject to the single 415 limit under that one plan; regardless of the number of employers you work for under the plan.

Let's contrast this to a situation where you work for two different employers who each sponsors their own plan. In that instance, the individual participant would have two separate 415 limits (as opposed to one) since their are two distinct plans sponsored by two unrelated employers.

This "may" address one of your issues.

Good Luck!