View all text of Subpart B [§ 410 - § 417]
§ 416. Special rules for top-heavy plans
(a) General ruleA trust shall not constitute a qualified trust under section 401(a) for any plan year if the plan of which it is a part is a top-heavy plan for such plan year unless such plan meets—
(1) the vesting requirements of subsection (b), and
(2) the minimum benefit requirements of subsection (c).
(b) Vesting requirements
(1) In generalA plan satisfies the requirements of this subsection if it satisfies the requirements of either of the following subparagraphs:
(A) 3-year vesting
(B) 6-year graded vesting
(2) Certain rules made applicable
(c) Plan must provide minimum benefits
(1) Defined benefit plans
(A) In general
(B) Applicable percentageFor purposes of subparagraph (A), the term “applicable percentage” means the lesser of—
(i) 2 percent multiplied by the number of years of service with the employer, or
(ii) 20 percent.
(C) Years of serviceFor purposes of this paragraph—
(i) In general
(ii) Exception for years during which plan was not top-heavyA year of service with the employer shall not be taken into account under this paragraph if—(I) the plan was not a top-heavy plan for any plan year ending during such year of service, or(II) such year of service was completed in a plan year beginning before January 1, 1984.
(iii) Exception for plan under which no key employee (or former key employee) benefits for plan year
(D) Average compensation for high 5 yearsFor purposes of this paragraph—
(i) In general
(ii) Year must be included in year of service
(iii) Certain years not taken into accountExcept to the extent provided in the plan, a year shall not be taken into account under clause (i) if—(I) such year ends in a plan year beginning before January 1, 1984, or(II) such year begins after the close of the last year in which the plan was a top-heavy plan.
(E) Annual retirement benefit
(2) Defined contribution plans
(A) In general
(B) Special rule where maximum contribution less than 3 percent
(i) In general
(ii) Treatment of aggregation groups(I) For purposes of this subparagraph, all defined contribution plans required to be included in an aggregation group under subsection (g)(2)(A)(i) shall be treated as one plan.(II) This subparagraph shall not apply to any plan required to be included in an aggregation group if such plan enables a defined benefit plan required to be included in such group to meet the requirements of section 401(a)(4) or 410.
(C) Application to employees not meeting age and service requirements
[(d) Repealed. Pub. L. 99–514, title XI, § 1106(d)(3)(B)(i), Oct. 22, 1986, 100 Stat. 2424]
(e) Plan must meet requirements without taking into account social security and similar contributions and benefits
(f) Coordination where employer has 2 or more plans
(g) Top-heavy plan definedFor purposes of this section—
(1) In general
(A) Plans not required to be aggregatedExcept as provided in subparagraph (B), the term “top-heavy plan” means, with respect to any plan year—
(i) any defined benefit plan if, as of the determination date, the present value of the cumulative accrued benefits under the plan for key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, and
(ii) any defined contribution plan if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan.
(B) Aggregated plans
(2) AggregationFor purposes of this subsection—
(A) Aggregation group
(i) Required aggregationThe term “aggregation group” means—(I) each plan of the employer in which a key employee is a participant, and(II) each other plan of the employer which enables any plan described in subclause (I) to meet the requirements of section 401(a)(4) or 410.
(ii) Permissive aggregation
(B) Top-heavy groupThe term “top-heavy group” means any aggregation group if—
(i) the sum (as of the determination date) of—(I) the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group, and(II) the aggregate of the accounts of key employees under all defined contribution plans included in such group,
(ii) exceeds 60 percent of a similar sum determined for all employees.
(3) Distributions during last year before determination date taken into account
(A) In generalFor purposes of determining—
(i) the present value of the cumulative accrued benefit for any employee, or
(ii) the amount of the account of any employee,
such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group.
(B) 5-year period in case of in-service distribution
(4) Other special rulesFor purposes of this subsection—
(A) Rollover contributions to plan not taken into account
(B) Benefits not taken into account if employee ceases to be key employee
(C) Determination dateThe term “determination date” means, with respect to any plan year—
(i) the last day of the preceding plan year, or
(ii) in the case of the first plan year of any plan, the last day of such plan year.
(D) Years
(E) Benefits not taken into account if employee not employed for last year before determination date
(F) Accrued benefits treated as accruing ratablyThe accrued benefit of any employee (other than a key employee) shall be determined—
(i) under the method which is used for accrual purposes for all plans of the employer, or
(ii) if there is no method described in clause (i), as if such benefit accrued not more rapidly than the slowest accrual rate permitted under section 411(b)(1)(C).
(G) Simple retirement accounts
(H) Cash or deferred arrangements or plans using alternative methods of meeting nondiscrimination requirementsThe term “top-heavy plan” shall not include a plan which consists solely of—
(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13) and matching contributions with respect to which the requirements of paragraph (11), (12), or (13) of section 401(m) are met, or
(ii) a starter 401(k) deferral-only arrangement described in section 401(k)(16)(B) or a safe harbor deferral-only plan described in section 403(b)(16).
Such term shall not include a plan solely because such plan does not provide nonelective or matching contributions to employees described in section 401(k)(15)(B)(i). If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2).
[(h) Repealed. Pub. L. 104–188, title I, § 1452(c)(7), Aug. 20, 1996, 110 Stat. 1816]
(i) DefinitionsFor purposes of this section—
(1) Key employee
(A) In generalThe term “key employee” means an employee who, at any time during the plan year, is—
(i) an officer of the employer having an annual compensation greater than $130,000,
(ii) a 5-percent owner of the employer, or
(iii) a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000.
For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers. In the case of plan years beginning after December 31, 2002, the $130,000 amount in clause (i) shall be adjusted at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000. Such term shall not include any officer or employee of an entity referred to in section 414(d) (relating to governmental plans). For purposes of determining the number of officers taken into account under clause (i), employees described in section 414(q)(5) shall be excluded.
(B) Percentage owners
(i) 5-percent ownerFor purposes of this paragraph, the term “5-percent owner” means—(I) if the employer is a corporation, any person who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or(II) if the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer.
(ii) 1-percent owner
(iii) Constructive ownership rulesFor purposes of this subparagraph—(I) subparagraph (C) of section 318(a)(2) shall be applied by substituting “5 percent” for “50 percent”, and(II) in the case of any employer which is not a corporation, ownership in such employer shall be determined in accordance with regulations prescribed by the Secretary which shall be based on principles similar to the principles of section 318 (as modified by subclause (I)).
(C) Aggregation rules do not apply for purposes of determining ownership in the employer
(D) Compensation
(2) Non-key employee
(3) Self-employed individualsIn the case of a self-employed individual described in section 401(c)(1)—
(A) such individual shall be treated as an employee, and
(B) such individual’s earned income (within the meaning of section 401(c)(2)) shall be treated as compensation.
(4) Treatment of employees covered by collective bargaining agreements
(5) Treatment of beneficiaries
(6) Treatment of simplified employee pensions
(A) Treatment as defined contribution plans
(B) Election to have determinations based on employer contributions
(Added Pub. L. 97–248, title II, § 240(a), Sept. 3, 1982, 96 Stat. 514; amended Pub. L. 98–369, div. A, title V, § 524(a)(1), (b)(1), (c)(1), title VII, § 713(f)(1), (4), (5)(A), (6), July 18, 1984,