3916 / What do the top-heavy rules require with respect to a qualified plan?
In any plan year in which a plan is a top-heavy plan ( Q 3917), additional qualification requirements must be met.1
Moreover, except to the extent provided in the regulations, all non-exempt plans, whether or not actually top-heavy, must contain provisions that meet the additional top-heavy qualification requirements and that will become effective should a plan become top-heavy.2
Plans established and maintained by the United States, by state governments and political subdivisions thereof, and by agencies and instrumentalities of any of these, are exempt from the top-heavy requirements.3 Also, the top-heavy rules are not applicable to SIMPLE IRA plans ( Q 3706), SIMPLE 401(k) plans ( Q 3778), safe harbor 401(k) plans ( Q 3773), or automatic enrollment safe harbor 401(k) plans ( Q 3762).4 PPA '06 Section 902(c) amended IRC Section 416(g)(4)(H) to exempt from the top-heavy rules plans consisting solely of (1) cash or deferred arrangements that meet the requirements of Section 401(k)(12) or 401(k)(13) and (2) matching contributions which meet the requirements of Section 401(m)(11) or 401(m)(12).
Planning Point: Note that safe harbor plans that permit after-tax employee contributions lose their exemption from the top-heavy testing requirements.
As to when a participant is a key employee for purposes of the top-heavy rules, see Q 3931. For the additional qualification requirements applicable to top-heavy plans, see Q 3922.
1. IRC § 401(a)(10)(B).
2. For rules and exemptions, see Treas. Reg. §§ 1.416-1, T-35 to 1.416-1, T-38.
3. IRC § 401(a)(10)(B).
4. IRC §§ 416(g)(4)(G), 401(k)(11)(D)(ii); IRC § 416(g)(4)(H).