Top Heavy Test on Aggregated Plans

[Guest chant44]

Employer has had an MPP with 2 year / 100% elig provisions in place since 93. MPP Plan is Top Heavy. Co. makes 10% allocation to MPP eligibles. Co. adopts 401K Jan 2000, with immediate elig.

When aggregated plans together for top heavy test, which eligbilty requirments are used for the purpose of allocating top heavy contribution?

[Guest Hans Moleman]

To determine whether a participant is eligible for a top heavy contribution you use the eligibility requirements of the individual plan.

[Guest chant44]

Thanks Hans. Do you mean the eligbility requirments of the plan that is Top Heavy?

Thanks in Advance

[Richard Anderson]

All plan participants (participating in either plan) not terminated as of the end of the plan year will get TH contribution if the aggregated plans are TH.

[Bob R]

The non-key employees in the 401(k) plan are entitled to top heavy minimums, even though it has more liberal age/service than the mp plan.

To be more specific, I'm presuming that key employees participate in both plans. If so, you have a required aggregation group and based on the facts you presented both plans are top heavy. Unfortunately, even though the government encourages liberal age/service in 401(k) plans (that's why you are able to permissively disaggregate or exclude NHCEs from adp testing if less than 1 yos/age 21), there is no relief from the top heavy rules. Since the money purchase plan already provides 3% to some of the key employees, you just need to provide the 3% top heavy in the 401(k) plan for those non-key employees who are not in the m/p plan -- assuming the plan documents provide that the top heavy minimum is provided in the m/p plan to the extent a non-key is in both plans.

If any of the non-keys who are getting the top heavy in the 401(k) plan are HCEs (this is unlikely but it's possible), then you have some additional nondiscrimination testing to perform. That's because you could end up with a situation where some HCE non-key's get a 3% employer contribution in the 401(k) plan and some NHCEs get nothing if the only employer contribution to the 401(k) plan is the top heavy minimum. I know this is rather extreme, but when new prototypes are available for GUST, you will see language in adoption agreements stating that if both plans do not benefit the same participants and only one plan provides the top heavy minimum when someone is covered by both plans, then the uniformity requirement of the 401(a)(4) regulations may be violated.