A plan is considered top-heavy if the key employees' balances exceed which percent of total account balances?

A plan is considered top-heavy when the account balances of key employees exceed 60 percent of the total account balances of all participants in the plan. This designation is significant because it triggers specific regulatory requirements intended to protect non-key employees and ensure that they receive fair benefits from the retirement plan.

The definition of key employees typically includes officers of the company making over a certain salary threshold, shareholders with significant ownership stakes, and other highly compensated individuals as defined by the Internal Revenue Code. When the aggregate balances of these key employees surpass 60 percent, it indicates a concentration of benefits among a small group, which can raise concerns about equity and compliance with plan requirements.

In turn, once a plan becomes classified as top-heavy, it may necessitate the implementation of minimum contributions or increased vesting schedules for non-key employees to balance out the benefits offered to the key employees, ensuring that the plan fulfills its purpose of providing retirement security for all employees.