Top Heavy Balance Cash/Accrual

[AmyETPA]

When calculating the Top Heavy account balance determination, and there is a profit sharing contribution that is partially deposited before the end of the plan year and partially deposited as a receivable, how do you handle that in your testing?

 

[Bri]

Aren't top heavy values done on a cash basis in a PS plan after the first year?

[Paul I]

The IRS notes that: https://www.irs.gov/retirement-plans/is-my-401k-top-heavy

"Account balance adjustments

You may need to make some adjustments to the account values before calculating the top-heavy ratio.

Add back these amounts:

    Distributions made to the employee from account during your testing period (such as hardship distributions)
    Cash-out distributions to terminated employees
    Loans to the employee during the testing period

Subtract these amounts:

    Rollover contributions from another employer's plan or IRA.
    Profit-sharing contributions that were not actually paid to the accounts during the testing period (for example, an amount declared in December but not contributed in cash until March the following year)."

 

[AmyETPA]

I guess I'm asking this more in a manner of how your particular valuation software works.  It doesn't happen that often for our clients, usually they fund during the year or they don't but if it's split where they prefund a portion before the end of the plan year and have a receivable, do you do two transactions for your PS? Pro Rata the portion of the contribution that isn't funded during the year?

[Bri]

Do you, in your software, utilize separate line-item accounting for the hard assets versus the receivable?  If so, you can probably check a box in the software to exclude the receivable sub-account from the calculations.  Like if account #201 is the mutual funds and account 202 is the receivable, only account 201 gets included.