In order for a plan to be top heavy, the top heavy ratio must be greater than 60%. One of my colleagues is caliming that the rules surrounding top heavy do not detail how many decimal places must be used in the calculation. He is further stating that the ratio that is slightly above 60% (i.e. 60.15%) can be rounded down to 60% and the plan would not be top heavy. My recollection is that the ratio must be carried out for two decimal places and anything over 60% makes a plan top heavy. My problem is that I cannot find this in any reference book or the regulations.

1. Please confirm my thought.
2. Please identify where this can be found. (regs would be best)

Thank you in advance.

I do not think you round. It is either greater than 60%, or it is not.


IRC 416(g)(1)(A)(ii) - any defined contribution plan if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan.

Agreed. I doubt the IRS would be very forgiving on this point.

Colleagues,

Thanks for your posts. It appears that we are all in agreement. Now all I need is a reference to a book or a cite. Can anyone help me?

IRC 416(g)(1)(A)(ii) - any defined contribution plan if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan.

I think that covers it. No mention of rounding.

Sully,

Thanks for the quick reply. However, you comment "No mention of rounding" is the part that has me concerned. If the section does not specifically say that you should round or to what place, can't that be interrpreted to say that I can round or not round? if I do round, can it be to the nearest integer? Tenth? hundreth? etc...

Am I just reading too much into this? I do not mean to be a pest, but the guy I am dealing with is being very picky and pushy.

Maybe I'm missing it, but I do not see how you can interpret it to allow for rounding.

I would politely ask him to show me in the regulations where it says you are allowed to round. I would be curious as to what he comes up with.

Also, 60.15% is still greater than 60.00%.

Sully,

Thanks for taking the time.

I tend to agree with Sully. This might be somewhat analagous to, for example, 410(b) testing. If you are covering 100% of your HC, and have 46 eligible NHC, ask your colleague if his/her opinion is that you can round down from 32.2 and only cover 32 employees rather than 33. 32 is less than 70%, which fails the test.

While this may not be the best example/analogy in the world, it's all I could come up with on short notice...

In this instance I would think you would NOT want rounding -- 60.15 is always going to be 60%. But if you round, 59.5% is top heavy too.

Kim, not sure how relevant rounding is in your example, because whether 59.5 or 60, the result is the same: not top-heavy. The rule is that one must be more than 60%. It is not "equal to OR more than 60%".