Receivable contributions to include in account balances for Top-Heavy

[Guest]

I have a question regarding which receivable contributions need to be included in participant account balances for the Top-Heavy test. It is my understanding that a Profit Sharing contribution for the 12/31/00 plan year end that is not deposited by 12/31/00 is not counted. However, any contribution required due to minimum funding needs to be counted in the Top-Heavy account balances. My question is, would I need to count any 401(k) deferrals which are for the plan year ended 12/31/00 but are not deposited by 12/31/00 need to be included in the participant account balances used for the Top-Heavy test?

I work in a daily environment and am trying to eliminate "backdating" as many transactions as possible.

I would appreciate any input. Thanks.

[david rigby]

I think that all usual accruals of contributions should be included. See regs in 1.416, Q&A T-24. Note especially the last sentence of the answer.

[Guest PC]

I disagree. I think the last sentence of that answer is still referring only to a plan that is subject to the minimum funding requirements. For plans that are not subject to minimum funding requirements, in general you would not include receivable contributions in account balances. This includes 401(k) deferrals receivable. The same analysis applies to required matching contributions receivable and required top heavy contributions receivable to profit sharing plans. The regs only distinguish between plans subject to the minimum funding requirements of 412 and plans not subject to minimum funding.

The only way I think you might make an argument to include deferrals receivable (if you really wanted to) is to claim that as of the day they are withheld from employees' paychecks they are plan assets whether actually contributed to the plan or not. I'm not sure if this argument would hold.

[david rigby]

Hmmm. Well, after further reading, I agree with PC, at least with respect to my comment about Q&A T-24: the last sentence is related to those plans that are subject to the minimum funding requirements. I apologize for engaging message response before engaging brain.

Therefore, if we refer again to the Q&A mentioned above, it appears that the amount of receivables to be included are only those made after the valuation date but before the determination date. Here "determination date" refers to the definition in IRC 416(g)(4)©. See also Q&A T-22 and T-23.

[Guest]

My understanding is that you would include receivable deferrals (and I suppose match if made at the same time)

e.g. I defer, the $ are taken out of my check in Dec, but are in transit and not deposited until January. If match is made by the company, then that is in transit at the same time. Now, if you go by the DOL rules about deposits, those deferrals should already be there.

Michael Pruett gave a talk on top heavy plans at the 1998 ASPA conference (workshop 44)his notes say you adjust the balance of a profit sharing plan by 'obligations created on or before the determination date'

e.g.i) a profit sharing contribution declared by board of directors before the determination date

iii.)matching contribution that is fixed formual by plan document

iv)a hard wired QNEC

v) a top heavy minimum due as a result of key employee deferrals during the plan year containing the determination date

vii)deferrals and related match contributions accrued as of the determination date.

his footnote refers to

Rev Rul ___-____C.B. ___.

I know its blank, unfortunately. There must be a rev ruling somewhere out there that he is referring to.

[Guest dflin]

Has anyone found the revenue ruling to which Tom Poje referred in the previous comment? I have a situation where an accrued TH minimum can pull a plan out of top heavy status for the following year. Also, what is a hard wired QNEC?

[Richard Anderson]

A "hard wired" QNEC is a QNEC that is not discretionary, but that is a required contribution specified in the document.