Top Heavy Testing Question

[metsfan026]

We have a Plan that was once a dual Plan, but has since Frozen the Cash Balance Plan leaving the Profit Sharing Plan to operate as a stand alone Plan for now.  It's a Safe Harbor Match (safe harbor formula).

The Top Heavy Testing is right on the border, but since it is a Safe Harbor Match I believe they are exempt from the testing and are only required to make the Safe Harbor?  I just wanted to make that was still the case, since there would be no Cash Balance Contributions and the Key Employees are only going to receive 401(k) and Safe Harbor Matching contributions.

Thanks!

[CuseFan]

I don't think that's a requirement that goes away once it applies, and I expect you had PS here too, so TH did apply. I don't see how you could have a TH combo plan and then freeze CB/stop PS and then avoid TH going forward, that does not make sense to me. 

Since no one is benefitting in the CB then I think your TH minimum does revert to 3% and which can be satisfied by the SHM. However, if TH, those not getting at least 3% in SHM need a TH allocation, IMHO.

 

[metsfan026]

22 hours ago, CuseFan said:

I don't think that's a requirement that goes away once it applies, and I expect you had PS here too, so TH did apply. I don't see how you could have a TH combo plan and then freeze CB/stop PS and then avoid TH going forward, that does not make sense to me. 

Since no one is benefitting in the CB then I think your TH minimum does revert to 3% and which can be satisfied by the SHM. However, if TH, those not getting at least 3% in SHM need a TH allocation, IMHO.

 

Would we still test the plans combined?

[CuseFan]

If a Key EE has a CB benefit and a DC account, yes. The Q&A below are from a Wolters Kluwer (ftwilliam) webinar on top heavy in 2013. Also, it looks like they are of the opinion that a non-key in both the frozen DB and the DC needs 5% for TH. Looking at the regulations, they say "covered" by a defined benefit plan, not "benefiting" in a plan, so it does look like it's 5% for non-keys who are in both plans. If some were excluded from the CB (like maybe non-owner/non-key HCEs) they would only be entitled to 3%.

Q. How are frozen plans treated for purposes of the top-heavy rules?

A. For purposes of section 416, a frozen plan is one in which benefit accruals have ceased but all assets have not been distributed to participants or their beneficiaries. Such plans are treated, for purposes of the top-heavy rules, as any non-frozen plan. That is, such plans must provide minimum contributions or benefit accruals, limit the amount of compensation which can be taken into account in providing benefits, and provide top-heavy vesting. Note that a frozen defined contribution plan may not be required to provide additional contributions because of the rule in section 416(c)(2)(B).

Q. An employer sponsors both a DB and DC Plan and the TH minimum is provided in the DC Plan. If the DB Plan accruals are frozen, what is the TH minimum % required in the DC Plan?

A. Frozen plans continue to be subject to the top-heavy rules (typically, top heavy minimum of 5% of compensation is provided by the defined contribution plan - see slide 35).

[metsfan026]

On 2/12/2026 at 1:33 PM, CuseFan said:

If a Key EE has a CB benefit and a DC account, yes. The Q&A below are from a Wolters Kluwer (ftwilliam) webinar on top heavy in 2013. Also, it looks like they are of the opinion that a non-key in both the frozen DB and the DC needs 5% for TH. Looking at the regulations, they say "covered" by a defined benefit plan, not "benefiting" in a plan, so it does look like it's 5% for non-keys who are in both plans. If some were excluded from the CB (like maybe non-owner/non-key HCEs) they would only be entitled to 3%.

Q. How are frozen plans treated for purposes of the top-heavy rules?

A. For purposes of section 416, a frozen plan is one in which benefit accruals have ceased but all assets have not been distributed to participants or their beneficiaries. Such plans are treated, for purposes of the top-heavy rules, as any non-frozen plan. That is, such plans must provide minimum contributions or benefit accruals, limit the amount of compensation which can be taken into account in providing benefits, and provide top-heavy vesting. Note that a frozen defined contribution plan may not be required to provide additional contributions because of the rule in section 416(c)(2)(B).

Q. An employer sponsors both a DB and DC Plan and the TH minimum is provided in the DC Plan. If the DB Plan accruals are frozen, what is the TH minimum % required in the DC Plan?

A. Frozen plans continue to be subject to the top-heavy rules (typically, top heavy minimum of 5% of compensation is provided by the defined contribution plan - see slide 35).

Thanks!  And, just so I'm clear, the Safe Harbor Match doesn't override the Top Heavy requirement in this case due to the presence of the Cash Balance Plan? (And, unlike the 3% Safe Habor, the Match doesn't apply to this Top Heavy requirement so participants who are getting the match will also get the full 5%?)

Sorry, I just want to make sure I'm not overthinking this.

Thank you!

[CuseFan]

4 hours ago, metsfan026 said:

And, just so I'm clear, the Safe Harbor Match doesn't override the Top Heavy requirement in this case due to the presence of the Cash Balance Plan

Correct

4 hours ago, metsfan026 said:

the Match doesn't apply to this Top Heavy requirement

It can, the rules on that changed some years ago, but check the terms in the plan document to verify it is allowed by that particular plan.

[david rigby]

The original poster could probably benefit from reading/re-reading the top-heavy statute, section 416 of the Internal Revenue Code:

https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section416&num=0&edition=prelim

and the regulations:  https://www.ecfr.gov/current/title-26/section-1.416-1.  (Regs in Q&A format.)