What Is Top Heavy?

What makes a plan Top Heavy?

When at least 60% of plan assets are held in balances of Key Employees.

What is a Key Employee?

  • A 5% owner
  • A 1% owner, having compensation over $150,000
  • An Officer receiving more than $150,000 in compensation

What are the risks with having a Top Heavy Plan?

If a plan is Top Heavy and does not take corrective action, it can lose it’s qualified status.

What are solutions to fix a Top Heavy plan?

A Qualified Non-Elective Contribution (QNEC) to eligible employees who have an insufficient allocation.
Monitor the balances throughout the year and consider adjusting contributions of the Key Employees.
Convert the plan to a Safe Harbor format.