What is the top-heavy test?
Each plan year, it must be determined whether your plan is “top-heavy.” A plan is top-heavy if, as of the determination date, the total account value of key employees exceeds 60% of the total account value of all employees in the plan. A key employee is: • An officer of the company who earned more than $150,000 (indexed) during the determination year • A more than 5% owner (and family members) • A more than 1% owner (and family members) who earned more than $150,000 (not indexed) during the determination year For existing plans, the determination date is the last day of the plan year immediately preceding the plan year being tested (i.e. for a calendar year plan, December 31, 2007 is the determination date for the 2008 plan year). For new plans, the determination date is last day of the current plan year (i.e. December 31, 2008 is the determination date for a calendar year 2008 plan year). This means that for new plans, you may not know your plan will be top-heavy until after the plan
Each plan year, it must be determined whether your plan is “top-heavy.” A plan is top-heavy if, as of the determination date, the total account value of key employees is more than 60% of the total account value of all employees in the plan. For 2003, a key employee is any employee who during the plan year was: (1) an officer of the employer who received more than $130,000 (adjusted for COL) in compensation from the employer, (2) a 5% owner of the employer, or (3) a 1% owner who received more than $150,000. When a plan is determined to be top-heavy, a minimum mandatory contribution by the employer is required on behalf of all non-key employees who are still employed as of the last day of the plan year. Top-heavy plans must provide a minimum contribution to non-key employees, generally being the lesser of (1) 3% of gross compensation, or (2) the largest contribution percentage received by any key employee. For this purpose, any salary deferral by a “key employee” is considered to be an e
