A defined contribution retirement plan such as a 401k that is "top heavy" is one which:A. permits larger contributions for emplo
yees that are highly compensated and smaller contributions for employees that have lower compensation levelsB. is over weighted in securities that have above average risk and must be rebalanced under the "prudent investor" ruleC. provides a disproportionately large retirement benefit to highly compensated key employees that can void the plan's tax qualificationD. has a greater number of employees than that disclosed in the plan's trust document
Answer: C. provides a disproportionately large retirement benefit to highly compensated key employees that can void the plan's tax qualification
Explanation:
A retirement plan is considered a top-heavy one when 60 percent of the aggregate accrued benefits or account balances are for the compensation of specific key employees. A key employee refers to a person who´s a 5 percent owner of the employer, or a 1 percent owner of the employer with over $150,000 in compensation, or an officer with over $180,000 in compensation from the employer ($185,000 since 2020, and subordinate to cost-of-living changes in the future).
