Sponsor refuses to make required top-heavy contributions to a 401(k) p

[Guest Richard Scheer]

A client of ours has a top-heavy 401(k) Plan in which the key employees deferred >3% for 1998 and 1999. We took over the case recently and discovered that the top-heavy contributions to non-key employees were never made. We notified the client of this required contribution (about $18,000.00 for the 2 years) and they refuse to make this deposit.

In my opinion, this would result in the Plan losing its tax qualified status and the usual ramifications for the employees in the Plan.

Is there anything else?

I don't think there can be an excise tax for missed minimum contributions to a Profit Sharing Plan. Am I correct?

Thanks for any help.

[Lynn Campbell]

In light of this client's failure to follow your advice, perhaps you should reconsider accepting this takeover plan, and notify them to find another TPA.

[rcline46]

First make sure plan is top heavy recognizing all prior plan distributions for the 98, 97,96, 95, 94 plan years. Also make sure Key employees properly identified.

If all is ok, then send letter to client, copy their atty and acct of failure to deposit and likelihood of plan disqualification if not deposited. If client refuses, send certified mail terminating client, detailing reasons and return any used payments.