Allocations to Employees with Less than 1000 Hours (Posted February 8, 2005) Technical Tip 138: The following question and answer were from the IRS Q&A Session at the 2003 ASPPA Annual Conference: A profit sharing plan provides that each eligible participant who is credited with 1,000 hours of service and is employed on the last day of the plan year is entitled to receive an allocated share of the discretionary employer contribution. The plan intends to satisfy the general test using the cross-testing rules, and will provide each NHCE with a minimum allocation of 5% of compensation. Under what conditions, if any, must a NHCE who is credited with less than 1,000 hours of service receive the minimum allocations of 5% of compensation? Response: Each NHCE who benefits under the plan must receive the minimum gateway allocation. Under Regulation 1.410(b)-3, if the employee receives an allocation, which is attributable to an employer contribution or forfeitures, the employee is considered to benefit for the past year. If the plan is top heavy, and if the NHCE is also a non-key employee, the NHCE must receive the top heavy minimum allocation if employed on the last day of the plan year even if the NHCE fails to be credited with 1,000 hours. See Regulation 1.416-1, Q&A M-10. Comment by the RLR&C ERISA attorneys: This Tip highlights the fact that a non-highly compensated participant's receipt of a top-heavy contribution for a plan year means the participant is benefiting for that year. And, if the plan is cross-tested and that participant is employed on the last day of the plan year, he or she is entitled to minimum gateway allocation (i.e., 5% of compensation), not normal the 3% top-heavy minimum contribution. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.