Guest xplan Posted March 15, 2001 Posted March 15, 2001 I know that this has already been discussed. However, I am looking for any cites which contain detail as to how many decimal places you need to carry out, in order to determine a plan's top heavy status. I.e.- my client's plan has a top heavy ratio = 60.07%. He is arguing that it should be 60% rounded down, but I took the conservative approach that anything >60%, without regard to rounding down, is considered top heavy. I informed him of my findings but he wants me to consider the plan not top heavy. I told him that I would send him the testing results and he needed to let me know how he wanted to proceed, in writing. Any thoughts as to how to indemnify myself and my firm from any future backlash if the IRS determines through audit that the plan is top heavy? Thanks in advance for any thought.
rcline46 Posted March 15, 2001 Posted March 15, 2001 Over 60% is top heavy. The plan is top heavy. Have client consult ERISA atty if he will not accept your findings. I am assuming you did add backs for previous years to get best results.
david rigby Posted March 15, 2001 Posted March 15, 2001 I agree, this is over 60%. However.......... Caution. Does the plan have any definitions or procedures for determining the present value of accrued benefits for purposes of the top-heavy test? Some plans define a set of actuarial assumptions (interest rate and mortality table) for this purpose. If not defined, it must be reasonable (IRS reg. 1.416 Q&A T-26), turnover assumptions should not be included. Use of an interest rate that might be considered "low" for funding purposes might be appropriate here, such as 5%. In addition, this will tend to lower the T-H ratio, since the Key Employees are usually among the older members of the group. Also, be extremely careful with the five year lookback (Q&A T-1 and Q&A T-30). Good records can help you provide a high level of accuracy to this test. Whenever you are this close to 60%, you probably owe the plan an accurate test. I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.
Guest xplan Posted March 19, 2001 Posted March 19, 2001 This was the first year of the plan so there weren't any "add backs." I thank you all for your insightful comments.
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