Do unrelated rollovers affect the top-heavy ratio?

Unrelated rollovers do not affect the top-heavy ratio. The top-heavy ratio is calculated based on the benefits provided to key employees compared to the overall benefits provided to all employees within the plan. For the purpose of this calculation, only the contributions made to the plan by the employer and employee contributions that are part of the plan’s benefit structure are counted.

Unrelated rollovers, which involve an employee moving funds from one retirement plan to another, do not create new contributions to the plan in question. Therefore, these rollovers do not factor into the determination of whether a plan is top-heavy. The focus is solely on contributions made while actively participating in the plan, rather than assets transferred in from other plans. Understanding this helps clarify how the top-heavy ratio is constructed and underscores the critical area of compliance with regulatory requirements for retirement plans.