Which types of rollovers are included in the top-heavy ratio?

The correct answer centers around the inclusion of related rollovers in the top-heavy ratio calculation. In the context of retirement plans, specifically 401(k) plans, a top-heavy ratio is computed to determine whether the plan predominantly benefits key employees or highly compensated employees.

Related rollovers refer to amounts that are transferred into the current plan from other retirement accounts that are associated with the same employer or specific individuals within a controlled group. These rollovers can significantly influence the benefit accrual for key employees and need to be considered when assessing whether the plan is top-heavy.

Excluding unrelated rollovers from the top-heavy ratio is essential as those amounts come from different plans or employers and do not reflect the employer's relationship to the employee within the context of the plan's design. Thus, only related rollovers are factored into the top-heavy calculations to provide a clear picture of the plan's benefits distribution.

Recognizing this specificity ensures that the top-heavy determination accurately reflects the plan's favorability towards high earners versus rank-and-file employees, which is the purpose of monitoring the top-heavy status.