3920 / Are rollover plans subject to the top-heavy rules?

How amounts rolled over (or otherwise transferred) to or from a qualified plan are treated for purposes of determining whether a plan is top-heavy depends on the surrounding circumstances.

A related rollover or transfer is initiated other than by the employee, as in the case of a merger or division of plans, or is made between plans of the same employer, or related employers required to be aggregated under IRC Section 414. For a related rollover or transfer, the amount rolled over is counted as part of an employee’s accrued benefits by the receiving plan but is disregarded by the distributing plan.

An unrelated rollover or transfer is initiated by an employee, regardless of who initiated the distribution, and made between plans of unrelated employers. For unrelated rollovers or transfers, the rollover or distribution generally must be added back to the distributing plan for a one year period and generally is disregarded by the receiving plan.¹

Notice 2013-74² provides that an in-plan Roth rollover is considered a “related rollover” and so the accepting plan must include the rollover in determining the present value of accrued benefits for top-heavy status.