If your retirement plan is considered top-heavy, you may be required to make a minimum contribution to certain employees. This article explains what that means, who it applies to, and how to manage your plan’s top-heavy compliance requirements through Ubiquity.

Who This Applies To

This information is for employers and plan administrators whose plans have been determined to be top-heavy, a regulatory classification based on the account balances of key employees relative to all other plan participants.

What You Need to Do

If your plan is top-heavy for a given plan year, the IRS generally requires you to make a minimum contribution to all eligible non-Key employees.

The required contribution is the lesser of:

  • 3% of the employee’s compensation, OR
  • The highest percentage of compensation contributed (including employee deferrals and employer contributions) to any Key employee during the plan year.
    • Key employee: Generally an owner or officer who meets certain IRS income or ownership thresholds.
    • Non-Key employee: Any participant who does not meet the criteria to be considered a Key employee.

When the Contribution is Due

For the 2024 plan year, the deadline to make the required top-heavy minimum contributions is December 31, 2025.

How to Use Forfeitures to Satisfy Top-Heavy Contributions

You may use plan forfeitures to fully or partially satisfy your required top-heavy contributions.

To request this:

  1. Email us with a request to transfer forfeitures to your plan's cash offset account.
  2. Once approved, forfeitures will automatically be applied to reduce your required contributions when you submit payroll data.
  3. This process continues until all available forfeitures are used up.
    • Forfeitures: Unvested employer contributions from former employees that are returned to the plan and can be used to offset employer contributions or plan expenses.

Top-Heavy Testing Methods: Aggregated vs. Disaggregated

Starting January 1, 2024, under the SECURE Act 2.0, plans may choose between two testing methods:

  • Aggregated Method: Includes all employees with account balances.
  • Disaggregated Method: Excludes employees who have never met IRS statutory eligibility—defined as:
    • At least 21 years old
    • At least 1 year of service (1,000 hours in a 12-month period)
    • Must have had an entry date of January 1 or July 1
      • Important: These exclusions apply even if your plan has more generous eligibility rules.

Only the employees included in the test are eligible for the top-heavy contribution under the disaggregated method.

How to View or Change Your Testing Method in the Ubiquity System

  1. Log in to your Plan Sponsor dashboard 
  2. Select the Top Heavy Report.
  3. Locate the Select Test Method dropdown.
  4. Choose either:
  • Aggregated
  • Disaggregated
  1. Click Rerun Report to generate the updated results.

How to Correct Key vs. Non-Key Employee Classifications

Accurate employee categorization is essential for correct top-heavy testing results.

To update an employee's Key or Non-Key status:

  1. From the Top Heavy Report, click the employee’s name.
  2. Review and update:
  • Ownership percentages
  • Compensation details
  • Officer or owner status
  1. Click Save.
  2. Return to the Top Heavy Report to view the updated testing outcome.

What Happens If No Action Is Taken

Failing to make the required top-heavy contributions by the IRS deadline may result in:

  • Plan disqualification
  • Loss of tax benefits
  • Potential penalties or corrective action

Be sure to take timely action to stay compliant.

Need Help?

If you need assistance with Top Heavy questions or calculations, please contact us.