Top heavy requirement under DC plan for combo plans

[Jakyasar]

Hi

Having a brain freeze for a change.

DC/CB combo. Both plans are top heavy, separately and combined as well.

CB is hard frozen i.e. no one gets an accrual. There are quite a few participants excluded from the CB plan categorically.

DC document says, top heavy is satisfied by DC plan but no % is provided.

In addition to the 3% NESH already being provided under the DC plan, do I need it to provide another 2% PS allocation at all, especially for the participants who are excluded from participating in the CB?

The only allocation to the key employees is the 3% NESH.

There is no gateway requirement.

Thank you

[David D]

If the plan is frozen and zero accrual (meaning 401a26 is no longer an issue), the the 3% Safe Harbor becomes the minimum. If not a safe harbor, then the DC minimum becomes the minimum so it could be less than 3%.

The "trap" that sometimes comes up is when the DB plan is a standalone, and it's "frozen" only applying the meaningful benefit to all to minimize future contribution requirements.  In that case, the key employees get the 1/2 percent minimum accrual, but the non keys must get the 2% accrual.  This is never a good result.

[Jakyasar]

David, thank you for your input.

[Jakyasar]

I want to add twist as I have never seen this situation before.

If the 401a26 prior benefit structure fails, can I do the following, assuming it is an acceptable method according to law:

1. Provide a few participants enough benefits to bring them up to 0.5% when testing for prior benefit? If ok to do so, do I need to bring the annual accrual to 0.5% level as well or could be lower to bring the prior benefit structure just to 0.5%.

2. Now that I am providing some slight accrual to these few participants, do I need to provide them the extra 2% PS allocation for top heavy purposes.

As a reminder, no key is getting any benefit under the db plan.

I hope I am making some sense.

Thank you

[david rigby]

Be careful not to conflate Key EE with Highly Compensated EE.  (Yes, often they are the same, but not always.)

[Jakyasar]

Not at all conflated. Dealing with keys only. No HCE and no key are benefitting under the DB plan and only getting non elective safe harbor in the DC plan.

In my case they are one and the same.