My plan failed the Top Heavy test; what happens next?
If your plan is considered top heavy, that means that key employees (typically owners and officers) hold over 60% of plan assets. When a plan is considered top heavy, a minimum contribution of up to 3% of gross compensation to the non-key employees is required in the following year. Any matching or other employer contributions for the year can offset this. If your Top Heavy test has failed for the current plan year, the only option to correct it is an employer contribution, known as a QNEC (qualified nonelective contribution).
Review Test
Review the Top heavy test results on the sponsor portal by logging in & going to My Plan > Annual Testing > Test Results. Review the test results and make sure you agree with:
- The group of employees listed as eligible for the plan year.
- The group of employees was determined to be Key Employees.
- The group of employees was determined to be non-Key Employees.
- The compensation amount for each employee.
- If all this appears correct, click Remediate and then select Fund Employer Contribution. We will then process the correction on your behalf.
The accuracy of the compliance tests depends on whether the above items are correct. If our records were used to complete the testing and determined that the records were inaccurate, the test results may change. If you notice any errors or updates, please email us, and we can update the records and revise the test. There will be a charge of $250 per hour for revised testing based on data changes. Therefore, it is in your best interest to ensure all information provided to us is accurate when submitting the census and year-end questionnaire.
Note that Top Heavy Remediation QNECs must be 100% vested, regardless of the employee’s length of service. The Plan’s forfeiture balance may be used to pay for some or all of the QNEC. QNECs must be deposited to the plan no later than 12 months following the close of the plan year for which they are allocated. For example, if you submitted a census and questionnaire for the 2025 plan year and your 2025 plan year was top heavy, the QNEC contribution would be due by December 31, 2026. The employer may typically take a deduction as a business cost for the QNEC contribution amount not funded by forfeitures if contributed before their tax filing deadline. Please consult your tax advisor for confirmation.