What is a top-heavy retirement plan and its effect on contributions?

• A. A plan that distributes all benefits immediately
• B. A plan that excludes non-key employees
• C. A plan with no vesting requirements
• D. A plan where key employee benefits dominate; it can trigger minimum contributions for non-key employees

Answer: (D)

Top-heavy plans are defined by the concentration of plan value in the hands of key employees. When those key employees’ benefits or account balances dominate, the plan is considered top-heavy. That situation triggers minimum contribution rules for non-key employees to ensure they receive a baseline level of benefits, so the plan doesn’t disproportionately favor the key players. Understanding who counts as a key employee (owners and certain officers with substantial compensation) helps see why these minimums exist. So, the description that a top-heavy plan is one where key employee benefits dominate and it can trigger minimum contributions for non-key employees is the best fit. It’s not about distributing all benefits at once, excluding non-key workers, or removing vesting requirements—the defining issue is the skew toward key employees and the resulting minimums for others.