Top Heavy Required Aggregation Group

[Dennis Povloski]

For 2014, plan sponsor has a profit sharing plan (no 401k component) that is combined with a cash balance plan. Top Heavy test is above 60%, so the plans must provide the top heavy minimum in 2015 (5% provided in the profit sharing plan).

Without consulting the TPA, the client opens up a separate 401(k) plan with safe harbor match effective 1/15/2015. No other contributions besides deferrals and safe harbor in this plan. The 401k, of course, has no eligibility requirements and immediate entry. So all employees come in on day 1.

Key employees participate in the 401k, profit sharing and cash balance.

In my reading, the required aggregation group consists of all plans of the employer in the determination year, which would be 2014.

Since the 401(k) didn't exist in 2014, is there any way that I can get out of providing the 2015 top heavy minimums to people that are just participants in the 401k plan. These people haven't entered the profit sharing plan or the cash balance plan.

Maybe this doesn't matter since the required aggregation group tells us how to determine top heavy, but doesn't necessary tell us who gets the top heavy minimum.

I think the answer is that all the non-keys in all the plans need to get top heavy in 2015, but I'm grasping at straws....

[Tom Poje]

One possible response, which is somewhat vague

Facts: DB and DC (Safe Harbor 401(k)) plans are top heavy and a key employee participates in both. Therefore, they must be aggregated for top heavy purposes.

But….

Is the safe harbor 401(k) still considered ‘not top-heavy?’ The Code implies yes, at least if the other plan is also a DC, then the safe harbor can be used to satisfy the top heavy in the other plan. However, since the top-heavy minimum is bumped up to 5% in the DC plan when combined with a DB plan, does that mean that the top heavy exemption does not apply?

Maybe. This is a required aggregation group, so you need to determine the top heavy status on a combined basis. However, even if the top-heavy group is top-heavy, the safe harbor plan is not. But, you have an additional problem. If you are not providing the DB top heavy minimum, but choose instead to provide the 5% DC top heavy minimum, you need to make sure that everyone in the safe harbor plan gets the 5% contribution or you will blow the top heavy exemption. So, you have the choice of providing the 5% DC contribution to everyone (even those not in the DB plan) or you lose the top heavy exemption in the safe harbor plan.

2. Two participants are excluded by class from the DB. One defers and receives the safe harbor match. The other does not defer, so receives no safe harbor. Is a top heavy contribution required for this participant?

Here, you have a safe harbor match plan. Therefore, there are people who are in DC only get nothing (they don't defer), and then there are people in the DB and DC who need to get either the 2% top heavy minimum in the DB plan or the 5% DC contribution in the DC plan. Again, if you have different levels of contribution in your DC plan, you lose your top heavy exemption.

2008 ASPPA Conference Q and A #38