top-heavy contribution

[k man]

If a 401(k) plan has immediate eligibility for deferrals but one year for profit sharing and the plan is top heavy for the plan year, who gets the top heavy contribution?

all participants or only participants eligible for profit sharing portion of plan?

[Richard Anderson]

All participants, whether they are eligible for the PS portion of the plan or not.

This could be a reason for not having immediate entry in a 401(k) that may be top-heavy.

For ADP/ACP testing and coverage testing the plan is allowed to disaggregate participants who have not met statutory eligibility requirements.

But, there is no such consideration given for a minimum TH contribution. This seems to be a deterent to liberal eligiblity for the 401(k) portion of the plan.

[MR]

Richard is right on the money. It's always a fun conversation when you take over a plan that had not been run this way and have to break the news to the client that his prior administrator had his head up his rump.