What is true about the top-heavy ratio in plans?

The concept of a top-heavy plan is defined by the ratio of account balances held by key employees compared to the total account balances in the retirement plan. To classify a plan as top-heavy, the regulations specify that the percentage of the total account balances attributable to key employees must exceed a certain threshold—in this case, 60%.

When a plan has more than 60% of its assets allocated to key employees, it is classified as top-heavy, which triggers certain requirements for minimum contributions and benefits for non-key employees. Understanding this threshold is crucial for plan administrators to ensure compliance with IRS regulations governing 401(k) plans.

In this context, the correct understanding is that only if the ratio exceeds the 60% mark will the plan be considered top-heavy, thereby impacting how contributions and benefits are structured for participants, especially non-key employees.