Top heavy contribution required with LDOY requirement?

[Guest Christie Banks]

We have a top heavy 401K plan which has a last day of year requirement to receive matching or profit sharing contributions. Does this have any effect on whether employees receive a top heavy contribution? (ie if participant terminated by the end of year and thus doesn't receive a match or PS contribution, do they still have to receive a top heavy contribution?)

[Guest mo again]

A plan may require last day employment for top heavy contribution purposes. You will need to check the allocation language to see if yours does.

[Guest]

as Mo indicated, no, such employees usually do not receive (nor are they required to receive) anything. [if it was a DB plan the answer is different - if they worked 1000 hours they would receive the minimum]

remember though, if they worked over 500 hours they must be treated as includable and not benefiting for coverage purposes.

for the schedule T, ees receiving a top heavy are treated as benefiting, even though they may receive a smaller % of pay. At that point, you have, for all practical purposes, a plan in need of cross testing, since you have two classes of employees - one group receiving one % of pay, and another group receiving 3% of pay.

[Richard Anderson]

Tom, I don't understand what you mean here:

"At that point, you have, for all practical purposes, a plan in need of cross testing, since you have two classes of employees - one group receiving one % of pay, and another group receiving 3% of pay."

Assuming the plan wishes to satisfy 401(a)(4) using the safe harbor, the plan must pass 410(B) by considering those who receive only the top heavy contribution as not benefiting. If it passes 410(B) this way, no further testing is required. Otherwise, the 401(a)(4) safe harbor can not be relied on. Do you agree?

[Guest]

yes. as long as you can pass the ratio % test (or avg ben test by treating the 3% groups as 'not benefiting')

The main point of my original comment was the following:

for schedule T, regs say you treat everyone, no matter what they got as benefitting. Lets say the ratio = 100%.

But lets say 4 of 10 NHCEs received top heavy only.

I wanted to make the point that you are not necessarily finished at that point. Under a(4) you fail ratio % test, and now must pass avg ben % test. If you fail that, think of your plan as being a class plan, with two groups - one at 3% and a class with all others. proceed from there.

sorry for not being clearer.