Top Heavy Aggregation

[Tetsuro]

I don't post much, but I'm confused about the effect on TH testing with respect to Key Employee balances and Safe Harbor status in a multiple plan arrangement.

Here is my fact pattern...

Plan 1 - 401k

Plan 2 - PS

Plan 3 - CB

3 Categories of employees

1 - Owner / Key EE

2 - Staff 1

3 - Staff 3

- Category 1 and 3 are NOT eligible for Plan 1.

- Category 2 is NOT eligible for Plans 2 and 3.

- All 3 plan are top heavy individually / separately.

Questions...

1. If Key employee balances only remain in Plan 1, does it need to be aggregated with Plans 2&3 for TH purposes (even though the Key's are ineligible and do not make are receive any contributions)?

2. If yes, then would the Staff 1 category would be required to receive the 3% TH min. contribution?

3. If yes, if I transfer the balances of the Key employees to Plan 2 then I do not need to aggregate and Staff 1 does not need to receive the TH min. contribution in Plan 1?

4. Is this statement correct - If Plan 1 has Key employee balances AND is a Safe Harbor Match plan with no other contributions, then I am required to aggregate but Plan 1 is exempt from TH because of the safe harbor status?

Thanks for your help!

[Kevin C]

1.416-1, T6 describes the required aggregation group.

T-6 Q. What is a required aggregate group?

A. For purposes of determining whether the plans of an employer are top-heavy for a particular plan year, the required aggregation group includes each plan of the employer in which a key employee participates in the plan year containing the determination date, or any of the four preceding plan years. In addition, each other plan of the employer which, during this period, enables any plan in which a key employee participates to meet the requirements of section 401(a)(4) or 410 is part of the required aggregation group. This concept may be illustrated by the following examples: ...

I don't see any clarification of what it means to participate, but I would expect it to include being a participant with a balance.

So, for answers to your questions, I'd say 1 is yes and 2 is yes.

3 is maybe because you haven't mentioned 410(b) and 401(a)(4) testing. If for the year starting after the transfer, Plan 1 isn't needed to show that the other plans pass 410(b) and 401(a)(4), then I think 3 would be yes. If Plan 1 is needed for testing the other plans, or if the transfer occurs during that year, then 3 would be no.

I think a similar situation to your question 4 was addressed in informal guidance at one of the ASPPA annual conferences. It will take some digging to find it, unless someone else remembers when it was discussed.