Top Heavy Aggregation of plans

[Tom]

We have a prospect who asked us to bid on the profit sharing plan.  At the presentation I earned for the first time they had a 401(k) bundled with a record keeper.  The record keeper has no role with the profit sharing plan. I find out the top heavy test has not been performed for the PS plan.  And when answering the record keeper's year-end questionnaire, the plan sponsor correctly indicated there was another plan but was told that the PS plan did not affect the k plan top heavy test.  Of course the PS plan at a minimum has to be top-heavy tested. 

I have not researched this thoroughly as it just came up.  But what I saw so far is that 2 plans of an employer must be aggregated for top heavy purposes when there is at least one key employee in both plans  "AND" the plans are aggregated for passage of 410(b) and 401(a)(4). I question the word AND in the source I saw.  So if both plans include a key employee but pass 401(b) and 401(a)(4) on their own, then there would be no aggregation is required for top heavy purposes.   That seems to be a big loophole.               

[My 2 cents]

My understanding of the rule is that all plans covering at least one key employee (not necessarily the same key employee) must be aggregated for top heavy testing.  I do not know whether anything is different if one of the plans is a safe harbor 401(k), however.

Plans that must be aggregated for passage of 410(b) and/or 401(a)(4) must be aggregated for top-heavy testing.

If the aggregation is top heavy, it is my understanding that any of the aggregated plans not covering any key employees need not provide top heavy accruals or contributions.

[Mike Preston]

10 hours ago, Tom said:

We have a prospect who asked us to bid on the profit sharing plan.  At the presentation I earned for the first time they had a 401(k) bundled with a record keeper.  The record keeper has no role with the profit sharing plan. I find out the top heavy test has not been performed for the PS plan.  And when answering the record keeper's year-end questionnaire, the plan sponsor correctly indicated there was another plan but was told that the PS plan did not affect the k plan top heavy test.  Of course the PS plan at a minimum has to be top-heavy tested. 

I have not researched this thoroughly as it just came up.  But what I saw so far is that 2 plans of an employer must be aggregated for top heavy purposes when there is at least one key employee in both plans  "AND" the plans are aggregated for passage of 410(b) and 401(a)(4). I question the word AND in the source I saw.  So if both plans include a key employee but pass 401(b) and 401(a)(4) on their own, then there would be no aggregation is required for top heavy purposes.   That seems to be a big loophole.               

Replace "AND" with "OR".  Lots of imprecise language in original post and reply but results are ok with two plans so with only so much time in the day, life goes on.