Are the account balances of former-key employees considered in the top-heavy ratio?

In the context of determining whether a 401(k) plan is top-heavy, the account balances of former key employees are not included in the top-heavy ratio calculation. Top-heavy determination is primarily concerned with current employees, especially those who are active participants in the plan.

The top-heavy ratio specifically focuses on the balances of key employees who are still working and participating in the plan, which reinforces a plan's compliance with certain minimum contribution requirements to non-key employees. Since former key employees are no longer part of the workforce, their account balances do not influence the top-heavy status of the plan.

This approach is designed to ensure that the benefits provided to active employees align with regulatory objectives to protect the interests of non-key employees in top-heavy plans. Such consideration is vital for maintaining fairness in the distribution of plan benefits and ensuring compliance with applicable ERISA regulations.