Understanding the Top Heavy Minimum Contribution Rules

When retirement plans are considered "top heavy", plan sponsors must make top heavy minimum contributions. Confusion often arises as to which employees are entitled to receive those contributions. The plan document controls. Plan sponsors can, and often do, limit top heavy contributions to employees who are not considered key employees and have not separated from service at the end of the year. It's important to remember that the otherwise-applicable 1,000 hour threshold that applies for 401(k) eligibility purposes is not applicable when it comes to top heavy minimum contributions (as long as the non-key employee is eligible to participate in the plan). If the non-key-employee remains employed by the employer at the end of the plan year, they must receive the top heavy minimum contribution even if they did not actually work 1,000 hours during that plan year. If the non-key-employee generally meets the plans eligibility requirements, they must receive the top heavy minimum contribution even if they did not contribute to their account for the year in question. For more information on the rules governing top heavy plans, visit Tax Facts Online. Read More: Link to Q3917.