416 Top Heavy Plans Flashcards
When is a plan top heavy?
When the PV of AB for Key employees over the PV of AB for all employees exceeds 60%
Who is a key employee?
- 5% owners
- 1% owners with comp > 150,000
- Officers with comp over the limit
a. Number of officers is 10% of total employees, capped at 50, and floored at 3
b. Exclude lowest paid officers
Beneficiaries of Key employees are key employees.
What is the minimum vesting required by a top-heavy plan? Who is required to get this vesting?
a. 100% at 3 years
b. 2 to 6 year grading schedule
- All ptps are required to get this minimum vesting.
When determining the Present Value of the accrued benefits for 416, when is the PV as of? Is past top-heavy minimums included in PV?
As of the most recent valuation date during the 12 months preceding the determination date.
Include the past top-heavy minimums
Which plans must be aggregated for 416?
- Any plans with key employees
2. Any plans that were aggregated to pass 401(a)(4)
Which plans may be permissively aggregated for 416?
Any plans that would pass 410(b) and 401(a)(4) if aggregated.
If combining multiple plans with different plan years for 416, which years do you use?
- Determination dates in the same calendar year
For 416 testing, what assumptions need to be used for mortality, interest, withdrawal, and salary scale?
No mandated assumptions for interest and mortality, but should be reasonable.
Cannot use withdrawal decrements or salary scale.
Which plans are exempt from the minimum benefits and vesting under 416?
Collectively Bargained Plans
What are the minimum benefits under 416 for DB Plans (for Key employees and non-Key employees)
- Key - no minimum required, but plan may give a minimum.
2. For non-key - must give 2% * Hi 5 years consecutive pay in last top heavy year * Top Heavy Service
What are the minimum benefits under 416 for DC Plans (for Key employees and non-Key employees).
- Key - no minimum required, but plan may give a minimum.
2. 3% pay allocation or highest key %, if less. Note that 401(m) ER matching contributions count towards 3%
How does becoming non-top heavy again affect the vesting and minimum benefit?
Plan can switch back to old vesting schedule, but employees with at least 3 years can elect to stay on TH vesting schedule and the switch cannot lower anyone’s vest %. Minimum accruals stay in place.
When is the determination and when is the valuation date under section 416 for the first plan year?
Last day of the first year
Which distributions are included in the 416 present value
- Last 5 years of in-service distributions
2. Benefit Payments in the past year (if not included PVAB at valuation date)
How are death benefits treated for 416 present value?
Limited to PVAB
Unrelated rollover/transfer definition in 416. Who counts the transfer?
Employee initiates a transfer of their benefit from one employer’s plan to another outside the controlled group
Only the plan making the transfer counts it under 416.
Related rollover/transfer definition in 416. Who counts the transfer?
Not initiated by employee or between employer’s plans (controlled group counted as one employer).
Only receiving plan counts the distribution
If participant is in both the DB and DC plan, what is the minimum benefit required for a top heavy plan?
- minimum only in DB plan
- 5% of comp in DC plan
- Provide the minim in DB plan but offset min by what you are providing already in DC plan
- Prove that the plan provides benefit > DB minimums
For 416 purposes, how are non-key employees that were previously key employees treated?
They are excluded completely
Under 416 both the DC and DB plan are top-heavy. A ptp only participates in the DC plan. What is the minimum required benefit?
3% (or lower if highest HCE is less than 3%)
How do you treat CBA plans for 416?
They are exempt from the minimum benefit and vesting rules but can be aggregated to help others pass. A plan with a key CBA employee must be aggregated.
Are employee contributions used in 416 ratio? Can they be used towards the 416 minimum?
Yes
No
What is the geometric series formula?
a * (1 - r^n) / (1 - r)
A plan has only been open for 3 years. A participant has 5 years worth of comp and plan is TH in current year. When determining the minimum top heavy benefit, how many years of comp do you use?
5 years. Can use years before the plan was effective.
