In a 401(k) plan, what does "top-heavy" mean?

In the context of a 401(k) plan, "top-heavy" specifically refers to a situation where more than 60% of the plan's assets are held by key employees. Key employees typically include individuals such as owners, officers, or highly compensated employees whose rights to benefits under the plan are significantly greater than those of other employees. The determination of whether a plan is top-heavy impacts the plan's compliance with certain legal requirements and ensures that the retirement benefits for non-key employees are protected.

When a plan is deemed to be top-heavy, it must adhere to specific minimum contribution requirements to ensure that non-key employees receive satisfactory benefits. This is to promote fairness in the distribution of retirement benefits across different levels of employees.