Mid-Year Termination of Safe Harbor Top Heavy Plan

I searched prior Q&As on this board but didn't find an answer.  I have a client with a top-heavy plan that has the 3% Safe Harbor QNEC.  The plan year and limitation year are the calendar year.  If the client properly terminates the plan mid-year in 2018 (e.g, plan passes ADP etc.), would the top heavy contribution be required on compensation accrued up until the date of the plan termination or compensation paid for the entire 2018 calendar year? 

Up to the date of termination. 

Good Luck!

agree with ETA, but with a caveat

2010 ASPPA Conference Q and A #3

DC plan is top heavy and has a plan year ending 12/31. The plan terminates on September 15, 2010. Normally, TH minimums are provided only if the employee is employed on the last day of the plan year. (Assume that there are salary deferrals during the year so that, if a top heavy minimum is required, it needs to be made.)

Questions:

(1) For the 2010 plan year, is 9/15/2010 treated as if it were the last day of the plan year, so that only non-key employees who are employed on that date are entitled to a TH minimum?

(2) If (1) is Yes, is the 3% minimum calculated for compensation from 1/1/2010-9/15/2010?

(1) Of course, if there is no employer contribution, there would not be an obligation to provide top heavy minimum contribution. But, if there were contributions to keys during the year, including elective deferrals, there is a top heavy minimum based on compensation and employment through 9/15/10. Plan must liquidate within a reasonable time under Rev. Rul. 89-87 or else 9/15 date may not be reasonable. There is effectively a short plan year for top heavy purposes.

(2) yes

...........

so if assets aren't liquidated are distributed:

#10. If a plan sponsor takes actions to terminate a plan but doesn’t distribute the assets as soon as administratively feasible, the plan isn’t considered terminated under IRC 401(a). The plan must remain qualified until it’s terminated. See Rev. Rul. 89-87 and IRM 7.12.1.8, Wasting Trust Procedures. https://www.irs.gov/irm/part7/irm_07-012-001

As I recall from the Conference, the IRS representative indicated the top heavy would then have to be provided through the end of the year if the assets weren't distributed timely (I believe it was indicated 'within 12 months' was deemed reasonable).

Thank you both of you.

Very helpful.  Thank you both.  I never considered that a top-heavy minimum may be required through the end of the plan year if terminated prior to, but assets are not distributed within a reasonable period of time.  You often have those stragglers that push the date out.  You may have already paid out most participants within that 12 month period, but you may have to pay out an additional amount (plus earnings) to all affected participants.  Based on yesterday's discussion and this is all the more reason to get the assets out of the plan as soon as possible upon plan termination!

Thanks again.

There is nothing concrete in 12 months, just a guideline, I suspect, depending on facts and circumstances if there was one or two stragglers it might not be an issue (unless perhaps it was the owner or something like that).

I'd be the first to admit, I hadn't thought about the issue until the IRS raised the point.

I suppose it sort of ties in with the concept that you really aren't suppose to get $ out of a deferral plan without a 'reasonable' distributable event. And if only a few people take distributions it sort of sounds like cheating to get around the rule.

Thanks Tom