What does “top-heavy” mean?
A qualified retirement plan is top-heavy if the account balances (or accrued benefits) of key employees are more than 60% of the total of all account balances (or accrued benefits) of all participants. A top-heavy test is performed as of the last day of a Plan Year, at which time the result determines the top-heavy status for the next Plan Year. Usually, all plans of an employer, and all plans of a controlled group of corporations, are tested together. For Plan Years beginning in 2008, key employees are: (1) any greater than 5% owners; (2) certain family members of greater than 5% owners; (3) greater than 1% owners that earn over $150,000; and (4) officers of the plan sponsor who earn greater than $150,000. Plans that are determined to be top-heavy must provide a minimum level of contributions (or benefit accruals) for all non-key employees. In a defined contribution plan (401(k), profit sharing, money purchase), the minimum contribution is 3% of total compensation for the Plan Year. A
