We currently are working with a plan where ee's are eligible to make deferrals on the first day of the plan year after they have completed one year of service, but are not eligible to receive a profit sharing contribution until they have completed 18 months of service.

This plan is top heavy so in order for the owner to make deferrals, we know that he must make a min. contribution to the eligible NHCE's each year. Up to this point, all employees have been eligible for deferrals and profit sharing. But due to some turn over, now he will have younger ee's who will be eligible to make deferrals in 2006 but would not be eligible to receive a profit sharing contribution until 2007.

I believe that because they are eligible to make deferrals, then they would have to receive the 3% TH minimum. Is this correct?

Also, under the same scenario but the plan was not top heavy, would the ee's who are eligible to defer but not receive a profit sharing contribution be included when doing the 70% test or could each piece of the plan be tested separately to pass the 70% test.

Hope this make sense. Thanks

as things currently stand, you are correct
if you are eligible to defer you must get top heavy if the plan is top heavy. (This might require a gateway minimum if the plan needs to be cross tested

you are also correct, for coverage (and nondiscrim) the nonelective portion of the plan could be tested using otherwise excludable option.

Since the er must make the 3% TH contribution why not convert to a Safe Harbor plan so that HCEs can make 15k deferral without ADP testing?