RPF M5 U5 Top-Heavy Testing Flashcards
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What is a top-heavy plan?
A plan that primarily benefits key employees, where account balances or present value of accrued benefits exceed 60% of total plan assets.
How are key employees identified?
Key employees include those who are officers with compensation over $200,000 in 2022 and $215,000 in 2023, own more than 1% of the company with compensation over $150,000, or own more than 5% of the company.
How is top-heavy status determined?
Account balances are sorted into key and non-key employee accounts, adjusted for certain amounts, and if key employee assets exceed 60% of total plan assets, the plan is top-heavy.
What are the consequences of a plan being top-heavy?
The employer must make a minimum contribution of the lesser of 3% of compensation or the highest contribution made for any key employee.
Who must receive a top-heavy minimum contribution?
The top-heavy minimum contribution must be made to non-key employees who are participants and may be made to key employees, as per the plan document.
What is the determination date?
The last day of the preceding plan year for an existing plan, or the last day of the first plan year for a new plan.
What is a key employee?
A participant who is an includible officer, a > 5% owner, or a > 1% owner at any time during the plan year ending on the determination date.
What is the effective change in 2024 regarding top-heavy testing?
Plans may exclude participants who have not met the statutory requirements of age 21 and one year of service from the top-heavy test.
What is the definition of a non-key employee?
An employee who is not a key employee.
What adjustments are made when determining top-heavy status?
Distributions paid to participants upon termination and in-service distributions are added back, while unrelated rollovers and assets of participants who terminated prior to the determination year are subtracted.
