416 Top Heavy Plans

Question 1

When is a plan top heavy?

Answer 1

When the PV of AB for Key employees over the PV of AB for all employees exceeds 60%

Question 2

Who is a key employee?

Answer 2

1. 5% owners
2. 1% owners with comp > 150,000
3. 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.

Question 3

What is the minimum vesting required by a top-heavy plan? Who is required to get this vesting?

Answer 3

a. 100% at 3 years
b. 2 to 6 year grading schedule

2. All ptps are required to get this minimum vesting.

Question 4

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?

Answer 4

As of the most recent valuation date during the 12 months preceding the determination date.

Include the past top-heavy minimums

Question 5

Which plans must be aggregated for 416?

Answer 5

1. Any plans with key employees

2. Any plans that were aggregated to pass 401(a)(4)

Question 6

Which plans may be permissively aggregated for 416?

Answer 6

Any plans that would pass 410(b) and 401(a)(4) if aggregated.

Question 7

If combining multiple plans with different plan years for 416, which years do you use?

Answer 7

1. Determination dates in the same calendar year

Question 8

For 416 testing, what assumptions need to be used for mortality, interest, withdrawal, and salary scale?

Answer 8

No mandated assumptions for interest and mortality, but should be reasonable.
Cannot use withdrawal decrements or salary scale.

Question 9

Which plans are exempt from the minimum benefits and vesting under 416?

Answer 9

Collectively Bargained Plans

Question 10

What are the minimum benefits under 416 for DB Plans (for Key employees and non-Key employees)

Answer 10

1. 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

Question 11

What are the minimum benefits under 416 for DC Plans (for Key employees and non-Key employees).

Answer 11

1. 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%

Question 12

How does becoming non-top heavy again affect the vesting and minimum benefit?

Answer 12

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.

Question 13

When is the determination and when is the valuation date under section 416 for the first plan year?

Answer 13

Last day of the first year

Question 14

Which distributions are included in the 416 present value

Answer 14

1. Last 5 years of in-service distributions

2. Benefit Payments in the past year (if not included PVAB at valuation date)

Question 15

How are death benefits treated for 416 present value?

Answer 15

Limited to PVAB

Question 16

Unrelated rollover/transfer definition in 416. Who counts the transfer?

Answer 16

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.

Question 17

Related rollover/transfer definition in 416. Who counts the transfer?

Answer 17

Not initiated by employee or between employer’s plans (controlled group counted as one employer).
Only receiving plan counts the distribution

Question 18

If participant is in both the DB and DC plan, what is the minimum benefit required for a top heavy plan?

Answer 18

1. minimum only in DB plan
2. 5% of comp in DC plan
3. Provide the minim in DB plan but offset min by what you are providing already in DC plan
4. Prove that the plan provides benefit > DB minimums

Question 19

For 416 purposes, how are non-key employees that were previously key employees treated?

Answer 19

They are excluded completely

Question 20

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?

Answer 20

3% (or lower if highest HCE is less than 3%)

Question 21

How do you treat CBA plans for 416?

Answer 21

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.

Question 22

Are employee contributions used in 416 ratio? Can they be used towards the 416 minimum?

Answer 22

Yes

No

Question 23

What is the geometric series formula?

Answer 23

a * (1 - r^n) / (1 - r)

Question 24

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?

Answer 24

5 years. Can use years before the plan was effective.

Question 25

PTP is in a plan during 2005, but does not complete enough hours to get an additional year of vesting. The plan is Top Heavy in 2005. T/F the ptp is on the TH vesting schedule in 2005.

Answer 25

True - all ptp on the same vesting schedule they just don’t get the vesting service year.

Question 26

PTP A is included in top heavy ratio and has been for last 4 years. would you include a distribution from 4 years ago?

Answer 26

Yes - must be active to be in TH calc so it was an in-service distribution

Question 27

What is the default pay for 416 - when would you not use the default for a question?

Answer 27

It is high-5 year consecutive pay and you would not use if they only give one type of pay. E.g. 3 year.

Question 28

To determine top heavy status - do you use PV of accrued benefits or just the accrued benefit.

Answer 28

PVAB

Question 29

Does the T-H ratio include non-vested benefits?

Answer 29

Yes

Question 30

How do you decide when the officer comp limit is as of?

Answer 30

Year of determination date

Question 31

Do Key employees get the minimum TH vesting schedule

Answer 31

Yes

Question 32

In the first year when is the Accrued benefit as of? When is the PV as of?

Answer 32

Accrued benefit as of end of year, but PV as of the valuation date.

Question 33

Key employees are employees that satisfy the definition of key employees during what time period?

Answer 33

The key employees are those who satisfy any of the key definitions during the plan year that ends on the determination date

Question 34

The earning threshold based on what time period?

Answer 34

Based on calendar year containing the determination date

Question 35

T/F a frozen plan can be TH.

Answer 35

False

Question 36

T/F the DB TH minimum is defined as an SLA

Answer 36

True

Question 37

Which participants are included in the TH calculation?

Answer 37

Those that provided services in the year ending on the determination date.