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  1. #1
    Join Date
    Jun 2008
    Posts
    1

    Default Top Heavy 401k/Profit Share

    My question involves labor and employment law for the state of: New York

    I've been a contributor to my company 401k plan for 10 years. The company offers a match on the plan, and has made 2 discretionary profit sharing contributions on my behalf in the ten years. The plan is a top heavy plan by admission of the plan trustees. The plan provides for 4 tiers for profit sharing: majority owners, minority owners, executives and other. My assumption is that I'm in the "other" category.

    My question is this: A co-worker and I recently checked the summary annual statement that we received for prior years, and noticed that in at least one year, a profit sharing contribution was made for which we did not receive a portion. Is this legal in a top heavy plan? Is there a minimum amount that lower level employees must receive if the top owners contribute for themselves? I had thought there was a 3% safe harbor rule.

    Thank you in advance.

  2. #2
    Join Date
    Feb 2008
    Posts
    1,179

    Default Re: Top Heavy 401k/Profit Share

    Here is a good article that explains TH plans and talks about some differing solutions:
    http://www.tpagroup.com/forms/topheavyplans.html


    The question then becomes are you a "key employee" under the THT? Or the years that there were no contributions, did the key employees not contribute? Is it possible that the minimum contribution was made to another plan (pension vs 401k for example)? Or that if you got the 3% a different way (say in match) that would count against the minimum for plan years later than 2002.

    What is the profit sharing allocation formula? Did you meet the minimum hours/service for those years? Were you in the group that was eligible for it?

    It is possible to be TH one year but not the next. It is possible to have a profit sharing allocation one year and not the next. And depending on the formula for the PS, it is possible that not every employee will get something. "Companies may use any number of different formulas to calculate the distribution of profits to their employees and establish a variety of rules and regulations regarding eligibility" Companies can integrate the PS formula with the Social Security limits, they can make it age-weighted, etc.

    Honestly, I would ask your HR/benefits group to explain why you didn't get an allocation in a specific year. Because all that I have written above is suppositions on how it is possible that some got one and others didn't. Why you didn't is going to be specific to your company's PS plan.

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