We're debating whether you count earnings on rollovers for top heavy purposes. The regs that allow exclusion of rollovers don't mention earnings on them. And with today's market, some rollovers throw off LOTS of earnings each year.
We have people on both sides. Comments?

The purpose of the Top Heavy test is to determine if excessive benefits are being accrued in favor of Key employees. The accrual of benefits here deals with ongoing employee and employer contributions, forfeiture reallocations, and the earnings thereon. Amounts rolled over from another plan, and the earnings on the rollover, are not included. This is assuming that the rollover is initiated by the employee/participant, as opposed to a rollover resulting from a merger of plans or otherwise initiated by the employer.

The rollover portion of a participant's account balance should be segregated. This segregated account includes earnings on the original rollover amount. The entire segregated rollover account is disregarded for Top Heavy purposes. Of course, the original rollover amount must be included by the plan that distributed the rollover for a period of 5 years. Also, if the rollover was accepted before 1/01/84, the receiving plan must include the rollover in its Top Heavy test.

IRC Sect. 416(g)(4)(A); Reg. 1.416-1, T-32