Ok, I have a cross-tested profit sharing plan only.
A = Shareholders (1)
B = all others - NHCEs (3)

Client wants to make a $2,000 contribution only to the plan. However that does not pass top heavy, b/c it only comes to about .75% of compensation. However, would it pass the top heavy rules if I spread the $2,000 across Group B and gave nothing to Group A....the total contribution then is only 2% of compensation.

Any thoughts???

I always thought it had to be 3% regardless in order to pass top heavy, am I wrong here after all this.

Top heavy does not necessarily have to be 3%. An allocation of equal percentage to all employees less than 3% is permitted depending on your plan document (some documents are written with the requirement of the 3%).

Conclusion: Your allocation to all employees equal to .75% of compensation should be OK.

But I fail the top heavy testing if I give it to the HCE??? Don't I?

Read your document and see what the top heavy minimum requirement is.

1. HCE's have nothing to do with TH. If you must describe something that will fail the TH rules, use "Key EE", not HCE.

2. It is a very poorly drafted document that does not provide that the TH minimum is the LESSER of 3% or the highest percentage allocated to any Key EE.

So, read the document, of course, but if it doesn't say what number 2 above indicates you should, at the least, amend it for the future.