Confused about required aggregation

[Guest JBarn]

I'm confused about the need for my client's required aggregation of his two DC Plans. Here are the facts:

1. has "frozen" P/S Plan (client's definition)which is top heavy.(I still have never received a straight answer as to how you have a frozen P/S Plan-doesn't IRS require "substanial and recurring" contributions? In this case document does not specify contributions based on profits so, if client hasn't been making contributions isn't the Plan actually terminated? Can Board Resolution simply be created that says Plan is now frozen?)

2. has Standardized 401(k) Plan with no match that covers all employees i.e. all key and nonkeys are eligible to receive benefits (make deferrals) but only nonkeys are deferring.

3. 401(k) Plan is not top heavy.

My understanding is that both Plans must be aggregated for purpose of Top Heavy testing as Key Employees "participate" in both Plans. I realize the Keys are not deferring in the 401(k) Plan but I thought the definition of participating is are you eligible (whether you do or not actually defer)

or not. Am I correct?

[KJohnson]

I agree they have to be aggregated, but I don't think it matters. If you only have ongoing elective deferrals then you are 100% vested to begin with so I don't think it changes any vesting schedule (your frozen profit sharing accounts should already be 100% vested).

Keys are apparently not deferring into the 401(k) and apparently not receiving any profit sharing contribution in the "frozen" plan. Your top heavy contribution is always the lesser of 3% or the largest contribution made for keys. In this case keys get 0% of comp so you have no top heavy obligation.

[Guest JBarn]

KJohnson thanks for response-it makes sense. In your opinion IS an eligible employee a participant regardless of their "participation level"? It could make a difference, for example requiring aggregation of Plans because Keys are "participants" vs. no required aggregation.

Also, any comments on the frozen plan question in my post?

Thanks

[Guest]

If an ee has met eligibility requirements, he / she is a participant regardless of deferral rate. this is an important concept to remember.

They are treated as includable AND Benefitting for coverage purposes.

[KJohnson]

I agree with Tom--they are considered participating once eligible without regard to whether they defer. I don't see how you could rationalize using a different definition for 416 than you use for 410(B).

As to a complete discontinuance of contributions, it is treated "like" a termination under 411(d)(3) and you must have 100% vesting going back to the date that contributions were discontinued.

However, in the case of profit sharing plans, I have seen employers continue to maintain the plan after a complete discontinuance (because of illiquid assets or other reasons). They simply have to continue to keep the Plan qualified, file 5500's etc. I don't think the IRS takes the position that you must distribute assets as soon as possible under Rev. Rul. 89-87 after a complete discontinuance, but I haven't gone back and looked at this.

[Guest JBarn]

Thanks for your help.