PENSION PLANNING CO. OPPOSES PROHIBITION ON USE OF ELECTIVE CONTRIBUTIONS TO PROVIDE REQUIRED MINIMUM BENEFITS.

The recently issued proposed regulation 1.401(k)-1 provides that, for plan years beginning after 1988, elective contributions and matching contributions may not be used to satisfy the requirement of providing a minimum benefit to non-key employees in top-heavy plans.

When TEFRA was adopted, Section 416(c)(2)(C) provided that elective contributions attributable to a salary reduction arrangement could not be taken into account for purposes of providing the minimum required benefit to non-key employees in top-heavy plans. Congress repealed this rule with respect to plan years beginning after 1984.

None of the multiple pieces of legislation enacted or proposed since that date has reinstated this prohibition; yet IRS has nonetheless prohibited not only elective contributions, but matching contributions as well, from being used to satisfy the top-heavy minimum contribution rule.

The proposed regulation directly contravenes existing law, and the intent of Congress in repealing Section 416(c)(2)(C). Unless and until legislation is enacted to prohibit such use, the proposed regulation should be revised to permit both elective and matching contributions to be used to satisfy the top-heavy minimum contribution requirement.

Very truly yours,