Top Heavy contribution to a new participant vs. contributions to the r

[Guest SJPrince]

I have a situation where an employer gives participants with 500 hours of service a 10% contribution at year end. They have a new participant who has less than that amount of hours of service. This participant is ineligible to receive that 10% contribution. I think this is ok. Now, my question is this... if the plan is Top Heavy... that new participant has to receive a 3% contribution right? Well do all the other participant who got the 10% contribution ALSO have to? I don't think they do because they got in excess of the 3%. Next question, ummmmm does this plan run afoul of 401(a)(4) now? I mean if the new guy only gets 3% but everyone else gets 10%?

I feel like I am going around in circles on this one and need a rope out of the hole!

TIA to anyone who drops me a line!

Samantha Prince

[Kathy]

Top Heavy minimums must be made for an employee who has met the eligibility and entry date requirements of the plan and who is an employee on the last day of the year, regardless of hours of service. This means that all those employees who got a 10% contribution have more than met the minimum. You simply make the minimum contribution for those who have not. This is not a discrimination issue - 416 says they must get at least that much but doesn't require them to get more unless they meet the plan's contribution requirements. Those who have already received at least the minimum based on the plan's normal allocation method don't need to get any more.

[Guest]

for purposes of coverage (and reporting on the 5500 - sched T) an ee who receives a Top Heavy minimum is treated as includable and benefiting. That seems to be the easy part.

however, now you have two groups of ees

1. those at 10%

2. those at 3%

if the plan can pass coverage by treating the employees in group 2 as includable and NOT benefiting you are finished.

(assuming there are no HCEs in group 2)

if plan can not pass coverage, then you have a 'cross-tested' plan consisting of two classes. that is probably the easiest way I can explain it. you will need to make sure the plan passes under the cross testing rules (e.g. avg ben test or ratio % test for each hce)