A Top-Heavy test determines whether key employees hold more than 60% of the total plan balance as of December 31 of the prior plan year. If so, the plan is considered “top-heavy” for the current plan year, which may require additional employer contributions to non-key employees.

Who This Applies To

This information is for plan sponsors and administrators who are responsible for monitoring compliance with IRS top-heavy rules.

How the Top-Heavy Ratio Is Calculated

The Top-Heavy ratio is calculated by dividing the cumulative balances of key employees by the total plan balance, both measured on December 31 of the prior plan year.

Before calculating, certain adjustments are required:

  • Exclude rollover balances from unrelated plans.
  • Exclude terminated participants who did not work for the employer in the one-year period before the determination date.
  • Include distributions made to prior-year terminated participants (e.g., a 2024 terminated employee who took a distribution in 2023).
  • Include in-service withdrawals taken by active employees within the past five years.
  • Example: An active employee took a withdrawal at age 59½ between 2019–2023; that amount is added back for testing.
  • Exclude former key employees.

Special note for new plans: If your plan’s first year is 2024, the determination date for that year is also December 31, 2024. All of the adjustments above still apply.

Who Is a Key Employee?

A Key Employee is defined by the IRS as someone who meets any of the following:

  • More than 5% owner of the company in the prior or current year (family attribution rules apply).
  • More than 1% owner of the company with annual compensation greater than $150,000 in the prior year (family attribution rules apply).
  • A company officer with annual compensation greater than the IRS limit ($220,000 in 2024).

Family attribution rules: Ownership is attributed to spouses, parents, grandparents, and children of owners with more than 5% ownership if they are actively employed by the company.

Accessing Your Top-Heavy Report

To run the report:

  1. Log in to your Employer Dashboard.
  2. From the left navigation menu, click Reports > Top Heavy Report.
  3. The current year’s report will automatically run. To view a different year, select Rerun Report.

What Happens If Your Plan Is Top-Heavy

If your plan is deemed top-heavy, non-key employees may be entitled to additional minimum contributions.(See: Understanding and Managing Top-Heavy Minimum Contributions)

  • If your plan provides a 3% or greater Safe Harbor Non-Elective contribution, your plan automatically satisfies the minimum top-heavy requirements.
  • If your plan only makes Safe Harbor Match contributions and employee deferrals, the plan is exempt from top-heavy correction requirements for that year.
  • If your plan provides Safe Harbor Match plus additional discretionary contributions (profit sharing or discretionary match), the exemption does not apply. You may need to contribute extra to non-key employees to meet the 3% minimum.

Examples

  • Your plan provides a 4% Safe Harbor Match in 2024 and an additional 1% Discretionary Profit-Sharing.



  • A participant receives 1% Safe Harbor Match plus 1% Profit-Sharing.



Key Takeaways

  • The Top-Heavy test ensures that retirement benefits are not disproportionately favoring key employees.
  • Safe Harbor plans often meet or are exempt from top-heavy requirements, but discretionary contributions can trigger additional obligations.
  • Running your Top-Heavy Report annually helps you stay compliant and plan ahead for potential contributions.

Need Help?

If you need assistance, please contact us.