If an employee is part of two related plans that are both top-heavy, are they required to receive the top-heavy minimum in each plan?

When an employee participates in two related plans that are both deemed top-heavy, the regulations under the Internal Revenue Code stipulate that the employee is not required to receive the top-heavy minimum from both plans.

Top-heavy plans are defined as those in which the key employees hold a significant portion of the plan's benefits. To ensure that non-key employees are not adversely affected by top-heavy provisions, the IRS mandates that a minimum benefit be provided, typically calculated as a percentage of compensation.

However, when an employee participates in multiple top-heavy plans that are related, the requirement to provide minimum benefits is applied in aggregate rather than at the individual plan level. This means that the employee is entitled to receive the top-heavy minimum from only one of the plans, as long as the total benefit across both plans satisfies the minimum threshold for top-heavy compliance. The employer has the flexibility to determine how to allocate this minimum benefit between the plans but is not obligated to provide it separately from each plan.

Understanding this distinction is crucial for compliance with the regulations governing retirement plans, as it helps to streamline benefits and aligns with the overall goal of ensuring equitable benefits for all employees participating in top-heavy plans.