Corrective Amendment and Top Heavy Minimum

[Dougsbpc]

Took over a small DB plan that excluded two physicians by name and highly compensated nurse practitioners. For the past 5 years, they have only had 4 physicians who met the eligibility requirements. All were HCEs and Keys. The plan passed 401(a)(26) in past years as 2/4 = 50%, which is greater than 40%. They now also have 3 nurse practioners who met the eligibility requirements. All happen to be HCEs and are therefore excluded from the plan. One NP was given a 1/2% of pay accrued benefit to pass 401(a)26. This was done with a corrective amendment.

The employer also happens to sponsor a profit sharing plan. In this plan all the NP's are excluded (they are all HCEs) so no problem with testing across both plan.

The DB plan indicates that the top heavy minimum is provided in the profit sharing plan.

Question: By bringing in the 1 HCE Nurse practitioner, they passed 401(a)26. Since she was not covered under the PSP she received no Top heavy minimum in that plan. Must she get a 2% top heavy minimum in the DB?

[Andy the Actuary]

Critical is that non-key emloyee get TH minimum. I recall the joy of having clients whose DB plan stated the DC plan would provide the TH minimum and whose DC plan stated the DB plan would provide the TH minimum.

Just because a plan pawns off the responsibility to provide the TH minimum does relieve them from the obligation to satisfy the requirement if there is no other plan. The question certainly would not have arisen had there been no other plans.

[My 2 cents]

My question has to do with the participation testing. Is it not the case that just because someone is excluded from being a participant under the terms of a plan, that does not make them excludable for compliance testing purposes? With the possible exception of exclusions due to age or service or coverage under a CBA, wouldn't the denominator of the participation test fraction under 401(a)(26) be entirely independent of the provisions of the plan to be tested?

[John Feldt ERPA CPC QPA]

The document is likely written to have employees who are participants in both plans receive the top heavy in the DC plan. Since this person is not in both plans, this language can't apply to them. Thus they get the DB top heavy minimum. Oops.

401(a)(26) counts all employees like the denominators used in 410(b). So, generally your 410(b) denominators for NHCEs and HCEs combined are used to determine your total "count". That total count is multiplied by 40% (minimum 2 if 2 EEs, maximum required 50). Yes, statutory exclusions apply in generally the same way that they apply under 410(b), like for CBA excludable employees.