Barely a participant - Top Heavy Minimum

[TPApril]

Participant hasn't terminated and remains on the books but only does minimal consulting some years.  He hasn't earned over $1000 for over 5 years, so clearly hasn't worked at least 1000 hours in that long. But he does defer 401(k), even when he only works one day in the year.

Would this participant continue to be considered active and therefor share in top heavy minimum for the years he does receive some income?  (Plan has just become top heavy).

[Bill Presson]

Yes.

[AlbanyConsultant]

I go with how they treat them on their system.  If they say the person is active and received compensation, then they are active.

On the other hand, if the plan sponsor counts them as terminated and then rehired (and then re-terminated) each time they do a consulting gig, then that's terminated and no top heavy minimum.  But most HR people won't go through that effort - at least until I explain to someone that they are costing the company money by keeping these people on the books as active.

[CuseFan]

If the person makes $500, a 3% TH costs the ER $15. If the person is deferring (s)he is still a participant so no added cost for the additional body attributable to TH. If you treat as terminated/re-hired each year, that might trigger annual cash-out processing, which could then be costing the ER or the (now ticked off EE) those distribution fees. Given the circumstances, is the person really an employee any more or an independent contractor?