FAQ 146: Allocations--Integrated top-heavy Partnership where principals are not at maximum integration

Problem: I am running an integrated allocation for a plan which is top-heavy. The plan is integrated at $87900 and 5.7%. There is plenty of contribution to provide for full integration, yet the calculations are cutting back the integrated piece to 2.7% and allocated the difference between the 2.7% and $41,000 as a prorata allocation. I have attached the client files for your review. Please advise.

Solution: The short answer is that the top guys are at 415, and the system cuts back 415 excess from the integrated portion. However, I went to run the budget to see what the max contribution to get these guys right at 415, and it told me it was a partnership. If that is correct, you should definitely run the budget routine to split the employee costs among the partners, as well as zero in on the amount that will maximize their contributions. Let me know if you need our budget doc for this; it is pretty detailed and will walk you through it. Before you run the budget, you may want to check your coding for the top heavy minimum. The ER contribution is going to groups 3467, but the top heavy minimum is only going to groups 34 (although this does include those non-terminees with greater than 1 hour of service). Note also that the system sometimes does some complicated calcs with top-heavy when different groups are elig for the employer contribution vs. the top-heavy minimum (see explanation below). Lastly, what is the ERCON in source 4? I didn't see the fields populated, and it is coded as input. Didn't know if it meant anything or not. Top heavy minimum in ER max allocations with differing groups elig for TH vs. PSP: Usually the only time we see this reduction is when the plan is top-heavy, and there are some part-time participants that must receive the top-heavy minimum, but are not eligible for the standard ps. The system takes away money from the Key employees to cover this required top-heavy minimum. It is just a limitation of the system. This only happens on plans that are top-heavy AND that have an Hours requirement that is different for their employer allocation. The System handles the Profit Sharing Contribution in 2 steps. Step 1: It determines the Total Contribution Amount, based on the total compensation of the employees who meet the requirements coded in the Source 2 specs in the "Contrib: Groups Elig." and "Hours" fields. In a Tiered formula, it applies the 415limit + Group % coded. Step 2: It then determines how the total dollar amount calculated in Step 1 should be allocated among the participants. It is at this point that it reads the plan is top-heavy, and the minimum must be covered for those participants who had between 1-1000 hours, who did not receive a standard ps allocation. It does not have enough money at this point to give them the top-heavy, so it takes away from the Principals allocation to cover this amount. This results in the "symptom" you see... the Principals are a slightly short of their 415 limit or fixed contribution percentage. To workaround this, change the hours required for the PSP to "1". Because the employees in group 2 are the same as those receiving top-heavy, this shouldn't result in an incorrect calc. Alternatively, if the employees under 1000 hours are not entitled to a top-heavy minimum, change their hours required to "1000".