The top–heavy rules generally ensure that the lower paid employees receive a minimum benefit if the plan is top–heavy. A plan is top–heavy when, as of the last day of the prior plan year, the total value of the plan accounts of key employees is more than 60% of the total value of the plan assets.
Thereof, how do I fix a top heavy 401k plan?
To correct a top–heavy allocation failure, the employer must make a corrective contribution on behalf of the employee who received an insufficient allocation in an amount equal to the insufficiency, adjusted for earnings. There is more than one way to correct a vesting failure under EPCRS.
Hereof, can safe harbor plans be top heavy?
A safe harbor 401(k) that has only elective deferrals and safe harbor matching contributions is generally exempt from being top–heavy. If the plan is making a nonelective contribution of 3% to all employees, it automatically satisfies the top–heavy contribution requirement.