Top Heavy

[Guest Phineas]

Is an owner-only plan (i.e, the owner of the company is the only employee) considered to be top heavy? And, is the plan required to include the top heavy vesting schedule?

[Andy the Actuary]

Not only "yes," but in the days that 415(e) applied, it was considered super-top-heavy. (It may still be considered STH but don't believe this has any practical significance.) (Unless my eyes have failed me once again), if you read 416 and attendant regs, you'll find no exemption for one-person plans.

[Guest Phineas]

Thank you.

I had read through 416 and saw no exceptions, but I just thought that it was odd that a plan with no non-key employees would still have the rules protecting non-key employees applied.

[david rigby]

Caution. An owner-only plan is likely to have 100% immediate vesting. AtA's answer is correct, but what if the plan already has a vesting schedule more generous than the TH schedule? Then the TH vesting provision is automatically covered.

[BG5150]

Be careful about the plan specifics. If the plan says all participants get a top heavy minimum (instead of non-key), and 401(k) contributions are made, the owner may need to give herself a up to 3% contribution regardless if she wants to make a profit sharing contribution.