top heavy and SEP, 401k

[Belgarath]

Suppose a corporation has a 401k, but never makes any contributions to it - this is an additional twist on a question from last week. Plan established only to allow a participant loan for owner, from funds rolled in from another plan. Employees eligible, but never notified. NOT a safe harbor plan.

Please ignore the qualification implications of the above for purposes of this question.

Client in a subsequent year establishes a SEP. Let us assume for the moment that is a prototype SEP, and not an IRS model SEP.

Client makes a contribution to the SEP for a given year. Under the terms of the SEP, he is the only one eligible (3 year eligibility) - BUT, since the plans are aggregated for TH purposes, doesn't this trigger a contribution requirement in the 401k plan? Or am I dreaming?

P.S. - poll question - I've never actually heard of this being a problem raised on audit - anyone ever encountered a situation in real life like this? If you start a new 401(k) plan for an employer who freezes a SEP after the prior year, do you always get all the SEP contribution/account balance data for all prior years when determining TH status for the new 401k?

[Lou S.]

TH minimum required for 401(k), no question about it.