Properly contribute and allocate the required top-heavy minimum, adjusted for earnings, to the affected non-key employees. Perform a top-heavy test each year. A non-key employee is everyone else. How to find the mistake: Review the top-heavy rules and definitions in your plan document.
How to fix the mistake: Corrective action: The employer must make a corrective contribution that includes lost earnings to the non-key employees. No IRS imposed fees for self-correction. Practices and procedures must be in place. If the mistakes are significant in the aggregate, Employer J needs to make corrective contributions for the plan year by the end of J needs to make the corrective contribution for the mistake that occurred in by December 31, Generally, safe harbor k plans are deemed to satisfy the top heavy requirements.
To qualify for the free pass, contributions must be limited to only salary deferrals and safe harbor contributions. If there are additional employer contributions, the plan is subject to the regular requirements described above. Plan Document A properly drafted document is the foundation of achieving the company's objectives and keeping the plan in operational compliance. Defined Benefits Services We work with business owners and investment advisors to determine what makes the most sense by providing a detailed cost benefit analysis.
Plan Corrections DWC's extensive experience with both the IRS and Department of Labor voluntary correction programs allows us to help you address just about any accident that might happen. Government Audits Being selected for an audit can feel overwhelming, but the process doesn't have to be. DWC has a long history of successfully partnering with investment advisors. Downloadable Resources. Our Team. Meet the Team. Join the k Experts.
Learn More. Nondiscrimination Testing: Top Heavy Determination The top heavy determination is one of the nondiscrimination tests required by the IRS to ensure plans do not disproportionately favor certain owners and officers. What is the top heavy determination? If a plan becomes top-heavy — and a key employee defers or receives an allocation of a certain percentage — the employer must provide an allocation of that percentage to all eligible non-key employees.
As you might suspect, establishing or converting to a safe harbor k plan is hardly simple. For example, to immediately start one, the new plan must have at least three months remaining in the short plan year.
If an employer owns more than one business, these rules apply to anyone who has an ownership stake in any of the related companies. Plans are tested for this at the end of each year, and the tests are forward-looking. That way, employers who have top-heavy plans can be aware of their status as they enter into a new year, and make sure to take the necessary steps required of them.
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