26 U.S.C. § 416
A trust shall not constitute a qualified trust under section 401(a) for any plan year if the plan of which it is a part is a top-heavy plan for such plan year unless such plan meets-
A plan satisfies the requirements of this subsection if it satisfies the requirements of either of the following subparagraphs:
A plan satisfies the requirements of this subparagraph if an employee who has completed at least 3 years of service with the employer or employers maintaining the plan has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions.
A plan satisfies the requirements of this subparagraph if an employee has a nonforfeitable right to a percentage of his accrued benefit derived from employer contributions determined under the following table:
| Years of service | The nonforfeitable percentage is: |
| 2 | 20 |
| 3 | 40 |
| 4 | 60 |
| 5 | 80 |
| 6 or more | 100 |
Except to the extent inconsistent with the provisions of this subsection, the rules of section 411 shall apply for purposes of this subsection.
A defined benefit plan meets the requirements of this subsection if the accrued benefit derived from employer contributions of each participant who is a non-key employee, when expressed as an annual retirement benefit, is not less than the applicable percentage of the participant's average compensation for years in the testing period.
For purposes of subparagraph (A), the term "applicable percentage" means the lesser of-
For purposes of this paragraph-
Except as provided in clause (ii) or (iii), years of service shall be determined under the rules of paragraphs (4), (5), and (6) of section 411(a).
A year of service with the employer shall not be taken into account under this paragraph if-
For purposes of determining an employee's years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a plan year when the plan benefits (within the meaning of section 410(b)) no key employee or former key employee.
For purposes of this paragraph-
A participant's testing period shall be the period of consecutive years (not exceeding 5) during which the participant had the greatest aggregate compensation from the employer.
The years taken into account under clause (i) shall be properly adjusted for years not included in a year of service.
Except to the extent provided in the plan, a year shall not be taken into account under clause (i) if-
For purposes of this paragraph, the term "annual retirement benefit" means a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at the normal retirement age under the plan.
A defined contribution plan meets the requirements of the subsection if the employer contribution for the year for each participant who is a non-key employee is not less than 3 percent of such participant's compensation (within the meaning of section 415). Employer matching contributions (as defined in section 401(m)(4)(A)) shall be taken into account for purposes of this subparagraph (and any reduction under this sentence shall not be taken into account in determining whether section 401(k)(4)(A) applies).
The percentage referred to in subparagraph (A) for any year shall not exceed the percentage at which contributions are made (or required to be made) under the plan for the year for the key employee for whom such percentage is the highest for the year.
Any employees not meeting the age or service requirements of section 410(a)(1) (without regard to subparagraph (B) thereof) may be excluded from consideration in determining whether any plan of the employer meets the requirements of subparagraphs (A) and (B).
A top-heavy plan shall not be treated as meeting the requirement of subsection (b) or (c) unless such plan meets such requirement without taking into account contributions or benefits under chapter 2 (relating to tax on self-employment income), chapter 21 (relating to Federal Insurance Contributions Act), title II of the Social Security Act, or any other Federal or State law.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section where the employer has 2 or more plans including (but not limited to) regulations to prevent inappropriate omissions or required duplication of minimum benefits or contributions.
For purposes of this section-
Except as provided in subparagraph (B), the term "top-heavy plan" means, with respect to any plan year-
Each plan of an employer required to be included in an aggregation group shall be treated as a top-heavy plan if such group is a top-heavy group.
For purposes of this subsection-
The term "aggregation group" means-
The employer may treat any plan not required to be included in an aggregation group under clause (i) as being part of such group if such group would continue to meet the requirements of sections 401(a)(4) and 410 with such plan being taken into account.
The term "top-heavy group" means any aggregation group if-
For purposes of determining-
such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group.
In the case of any distribution made for a reason other than severance from employment, death, or disability, subparagraph (A) shall be applied by substituting "5-year period" for "1-year period".
For purposes of this subsection-
Except to the extent provided in regulations, any rollover contribution (or similar transfer) initiated by the employee and made after December 31, 1983, to a plan shall not be taken into account with respect to the transferee plan for purposes of determining whether such plan is a top-heavy plan (or whether any aggregation group which includes such plan is a top-heavy group).
If any individual is a non-key employee with respect to any plan for any plan year, but such individual was a key employee with respect to such plan for any prior plan year, any accrued benefit for such employee (and the account of such employee) shall not be taken into account.
The term "determination date" means, with respect to any plan year-
To the extent provided in regulations, this section shall be applied on the basis of any year specified in such regulations in lieu of plan years.
If any individual has not performed services for the employer maintaining the plan at any time during the 1-year period ending on the determination date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account.
The accrued benefit of any employee (other than a key employee) shall be determined-
The term "top-heavy plan" shall not include a simple retirement account under section 408(p).
The term "top-heavy plan" shall not include a plan which consists solely of-
Such term shall not include a plan solely because such plan does not provide nonelective or matching contributions to employees described in section 401(k)(15)(B)(i). If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2).
For purposes of this section-
The term "key employee" means an employee who, at any time during the plan year, is-
For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers. In the case of plan years beginning after December 31, 2002, the $130,000 amount in clause (i) shall be adjusted at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000. Such term shall not include any officer or employee of an entity referred to in section 414(d) (relating to governmental plans). For purposes of determining the number of officers taken into account under clause (i), employees described in section 414(q)(5) shall be excluded.
For purposes of this paragraph, the term "5-percent owner" means-
For purposes of this paragraph, the term "1-percent owner" means any person who would be described in clause (i) if "1 percent" were substituted for "5 percent" each place it appears in clause (i).
For purposes of this subparagraph-
The rules of subsections (b), (c), and (m) of section 414 shall not apply for purposes of determining ownership in the employer.
For purposes of this paragraph, the term "compensation" has the meaning given such term by section 414(q)(4).
The term "non-key employee" means any employee who is not a key employee.
In the case of a self-employed individual described in section 401(c)(1)-
The requirements of subsections (b), (c), and (d) shall not apply with respect to any employee included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and 1 or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.
The terms "employee" and "key employee" include their beneficiaries.
A simplified employee pension shall be treated as a defined contribution plan.
In the case of a simplified employee pension, at the election of the employer, paragraphs (1)(A)(ii) and (2)(B) of subsection (g) shall be applied by taking into account aggregate employer contributions in lieu of the aggregate of the accounts of employees.
26 U.S.C. § 416
Inflation Adjusted Items for Certain YearsFor inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under section 401 of this title.
EDITORIAL NOTES
REFERENCES IN TEXTThe Federal Insurance Contributions Act, referred to in subsec. (e), is act Aug. 16, 1954, ch. 736, §§3101, 3102, 3111, 3112, 3121 to 3128, 68A Stat. 415, which is classified generally to chapter 21 (§3101 et seq.) of this title. For complete classification of this Act to the Code, see section 3128 of this title and Tables.The Social Security Act, referred to in subsec. (e), is act Aug. 14, 1935, ch. 531, 49 Stat. 620. Title II of the Social Security Act is classified generally to subchapter II (§401 et seq.) of chapter 7 of Title 42, The Public Health and Welfare. For complete classification of this Act to the Code, see section 1305 of Title 42 and Tables.
AMENDMENTS2022-Subsec. (c)(2)(C). Pub. L. 117-328, §310(a), added subpar. (C).Subsec. (g)(4)(H). Pub. L. 117-328, §125(e), inserted "Such term shall not include a plan solely because such plan does not provide nonelective or matching contributions to employees described in section 401(k)(15)(B)(i)." before "If, but" in concluding provisions. Pub. L. 117-328, §121(c), substituted "arrangements or plans" for "arrangements" in heading and "and matching contributions with respect to which the requirements of paragraph (11), (12), or (13) of section 401(m) are met, or" for ", and" in cl. (i), added cl. (ii), and struck out former cl. (ii) which read as follows: "matching contributions with respect to which the requirements of section 401(m)(11) or 401(m)(12) are met."2006-Subsec. (g)(4)(H)(i). Pub. L. 109-280, §902(c)(1), inserted "or 401(k)(13)" after "401(k)(12)".Subsec. (g)(4)(H)(ii). Pub. L. 109-280, §902(c)(2), inserted "or 401(m)(12)" after "401(m)(11)". 2004-Subsec. (i)(1)(A). Pub. L. 108-311 substituted "In the case of plan years" for "in the case of plan years" in concluding provisions.2002-Subsec. (c)(1)(C)(iii). Pub. L. 107-147, §411(k)(1), substituted "Exception for plan under which no key employee (or former key employee) benefits for plan year" for "Exception for frozen plan" in heading.Subsec. (g)(3)(B). Pub. L. 107-147, §411(k)(2), substituted "severance from employment" for "separation from service".2001-Subsec. (c)(1)(C)(i). Pub. L. 107-16, §613(e)(A), substituted "clause (ii) or (iii)" for "clause (ii)".Subsec. (c)(1)(C)(iii). Pub. L. 107-16, §613(e)(B), added cl. (iii).Subsec. (c)(2)(A). Pub. L. 107-16, §613(b), inserted at end "Employer matching contributions (as defined in section 401(m)(4)(A)) shall be taken into account for purposes of this subparagraph (and any reduction under this sentence shall not be taken into account in determining whether section 401(k)(4)(A) applies)." Subsec. (g)(3). Pub. L. 107-16, §613(c)(1), amended heading and text of par. (3) generally. Prior to amendment, text read as follows: "For purposes of determining-"(A) the present value of the cumulative accrued benefit for any employee, or"(B) the amount of the account of any employee,such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 5-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group."Subsec. (g)(4)(E). Pub. L. 107-16, §613(c)(2), in heading substituted "last year before determination date" for "last 5 years" and in text substituted "1-year period" for "5-year period".Subsec. (g)(4)(H). Pub. L. 107-16, §613(d), added subpar. (H).Subsec. (i)(1)(A). Pub. L. 107-16, §613(a)(1)(D), in concluding provisions, substituted "in the case of plan years beginning after December 31, 2002, the $130,000 amount in clause (i) shall be adjusted at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000." for "For purposes of clause (ii), if 2 employees have the same interest in the employer, the employee having greater annual compensation from the employer shall be treated as having a larger interest." Pub. L. 107-16, §613(a)(1)(A), struck out "or any of the 4 preceding plan years" after "plan year" in introductory provisions.Subsec. (i)(1)(A)(i). Pub. L. 107-16, § 613(a)(1)(B), added cl. (i) and struck out former cl. (i) which read as follows: "an officer of the employer having an annual compensation greater than 50 percent of the amount in effect under section 415(b)(1)(A) for any such plan year,".Subsec. (i)(1)(A)(ii)-(iv). Pub. L. 107-16, §613(a)(1)(C), redesignated cls. (iii) and (iv) as (ii) and (iii), respectively, and struck out former cl. (ii) which read as follows: "1 of the 10 employees having annual compensation from the employer of more than the limitation in effect under section 415(c)(1)(A) and owning (or considered as owning within the meaning of section 318) the largest interests in the employer,".Subsec. (i)(1)(B)(iii). Pub. L. 107-16, §613(a)(2), struck out "and subparagraph (A)(ii)" after "this subparagraph" in introductory provisions. 1996-Subsec. (g)(4)(G). Pub. L. 104-188, §1421(b)(7), added subpar. (G).Subsec. (h). Pub. L. 104-188, §1452(c)(7), struck out subsec. (h) which related to adjustments in section 415 limits for top-heavy plans.Subsec. (i)(1)(A). Pub. L. 104-188, §1431(c)(1)(C), substituted "section 414(q)(5)" for "section 414(q)(8)" in closing provisions.Subsec. (i)(1)(D). Pub. L. 104-188, §1431(c)(1)(B), substituted "section 414(q)(4)" for "section 414(q)(7)".1988-Subsec. (i)(1)(A). Pub. L. 100-647, §1011(i)(4)(B), inserted at end "For purposes of determining the number of officers taken into account under clause (i), employees described in section 414(q)(8) shall be excluded." Subsec. (i)(1)(A)(i). Pub. L. 100-647, §1011(d)(8), substituted "50" for "150" and "415(b)(1)(A)" for "415(c)(1)(A)".Subsec. (i)(1)(D). Pub. L. 100-647, §1011(j)(3)(A), added subpar. (D). 1986-Subsec. (a)(3). Pub. L. 99-514, §1106(d)(3)(A), struck out par. (3) which read as follows: "the limitation on compensation requirement of subsection (d)."Subsec. (c)(2)(B)(ii), (iii). Pub. L. 99-514, §1106(d)(3)(B)(ii), redesignated cl. (iii) as (ii) and struck out former cl. (ii) which read as follows: "DETERMINATION OF PERCENTAGE.-The determination referred to in clause (i) shall be determined for each key employee by dividing the contributions for such employee by so much of his total compensation for the year as does not exceed $200,000." Subsec. (d). Pub. L. 99-514, §1106(d)(3)(B)(i), repealed subsec. (d) which provided for a $200,000 limitation on the amount of annual compensation of each employee taken into account.Subsec. (g)(4)(E). Pub. L. 99-514, §1852(d)(2), amended subpar. (E) generally. Prior to amendment, subpar. (E) read as follows: "If any individual has not received any compensation from any employer maintaining the plan (other than benefits under the plan) at any time during the 5-year period ending on the determination date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account."Subsec. (g)(4)(F). Pub. L. 99-514, §1118(a), added subpar. (F). Subsec. (i)(1)(A). Pub. L. 99-514, §1852(d)(1), inserted at end "Such term shall not include any officer or employee of an entity referred to in section 414(d) (relating to governmental plans)." 1984-Subsec. (c)(2)(C). Pub. L. 98-369, §524(c)(1), struck out subpar. (C) which provided that for purposes of this paragraph, any employer contribution attributable to a salary reduction or similar arrangement shall not be taken into account.Subsec. (d)(2). Pub. L. 98-369, §713(f)(5)(A), inserted "at the same time and". Subsec. (f). Pub. L. 98-369, §713(f)(6)(A), substituted "required" for "require".Subsec. (g)(3). Pub. L. 98-369, §713(f)(4), inserted at end "The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group." Subsec. (g)(4)(E). Pub. L. 98-369, §524(b)(1), added subpar. (E).Subsec. (i)(1)(A). Pub. L. 98-369, §713(f)(1)(A), (C), substituted in provisions preceding cl. (i) "an employee" for "any participant in an employer plan" and inserted at end thereof provision for treatment of an employee with the greater annual compensation as having a larger interest in the employer where, for purposes of cl. (ii), 2 employees have the same interest in the employer.Subsec. (i)(1)(A)(i). Pub. L. 98-369, §524(a)(1), inserted "having an annual compensation greater than 150 percent of the amount in effect under section 415(c)(1)(A) for any plan year".Subsec. (i)(1)(A)(ii). Pub. L. 98-369, §713(f)(1)(B), required a key employee to have annual compensation from the employer of more than the limitation in effect under section 415(c)(1)(A).Subsec. (i)(1)(B)(iii). Pub. L. 98-369, §713(f)(6)(B), substituted subparagraph "(A)(ii)" for "(A)(ii)(II)".Subsec. (i)(1)(C). Pub. L. 98-369, §713(f)(1)(A), substituted in heading "ownership in the employer" for "5-percent or 1-percent owners".
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2022 AMENDMENT Amendment by section 121(c) of Pub. L. 117-328 applicable to plan years beginning after Dec. 31, 2023, see section 121(d) of Pub. L. 117-328, set out as a note under section 401 of this title.Amendment by section 125(e) of Pub. L. 117-328 effective as if included in the enactment of section 112 of div. O of Pub. L. 116-94, see section 125(f)(2) of Pub. L. 117-328, set out as a note under section 401 of this title. Pub. L. 117-328, div. T, title III, §310(b), Dec. 29, 2022, 136 Stat. 5347, provided that: "The amendment made by subsection (a) [amending this section] shall apply to plan years beginning after December 31, 2023."
EFFECTIVE DATE OF 2006 AMENDMENT Amendment by Pub. L. 109-280 applicable to plan years beginning after Dec. 31, 2007, see section 902(g) of Pub. L. 109-280, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT Amendment by Pub. L. 107-147 effective as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment relates, see section 411(x) of Pub. L. 107-147, set out as a note under section 25B of this title.
EFFECTIVE DATE OF 2001 AMENDMENT Pub. L. 107-16, §613(f), June 7, 2001, 115 Stat. 102, provided that: "The amendments made by this section [amending this section] shall apply to years beginning after December 31, 2001."
EFFECTIVE DATE OF 1996 AMENDMENT Amendment by section 1421(b)(7) of Pub. L. 104-188 applicable to taxable years beginning after Dec. 31, 1996, see section 1421(e) of Pub. L. 104-188, set out as a note under section 72 of this title. Amendment by section 1431(c)(1)(B), (C) of Pub. L. 104-188 applicable to years beginning after Dec. 31, 1996, except that in determining whether an employee is a highly compensated employee for years beginning in 1997, such amendment to be treated as having been in effect for years beginning in 1996, see section 1431(d)(1) of Pub. L. 104-188, set out as a note under section 414 of this title.Amendment by section 1452(c)(7) of Pub. L. 104-188 applicable to limitation years beginning after Dec. 31, 1999, see section 1452(d) of Pub. L. 104-188, set out as a note under section 415 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT Pub. L. 100-647, title I, §1011(j)(3)(B), Nov. 10, 1988, 102 Stat. 3468, provided that: "The amendment made by this paragraph [amending this section] shall apply to years beginning after December 31, 1988." Amendment by section 1011(d)(8), (i)(4)(B) of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 1106(d)(3)(A), (B) of Pub. L. 99-514 applicable to benefits accruing in years beginning after Dec. 31, 1988, except as otherwise provided, see section 1106(i)(5) of Pub. L. 99-514, set out as a note under section 415 of this title.Pub. L. 99-514, title XI, §1118(b), Oct. 22, 1986, 100 Stat. 2463, provided that: "The amendment made by subsection (a) [amending this section] shall apply to plan years beginning after December 31, 1986."Amendment by section 1852(d) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98-369, div. A, title V, §524(a)(2), July 18, 1984, 98 Stat. 872, provided that: "The amendment made by this subsection [amending this section] shall apply to plan years beginning after December 31, 1983."Pub. L. 98-369, div. A, title V, §524(b)(2), July 18, 1984, 98 Stat. 872, provided that: "The amendment made by this subsection [amending this section] shall apply to plan years beginning after December 31, 1984."Pub. L. 98-369, div. A, title V, §524(c)(2), July 18, 1984, 98 Stat. 872, provided that: "The amendment made by this subsection [amending this section] shall apply to plan years beginning after December 31, 1984."Amendment by section 713 of Pub. L. 98-369 effective as if included in the provision of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, to which such amendment relates, see section 715 of Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATEPub. L. 97-248, title II, §241, Sept. 3, 1982, 96 Stat. 520, provided that: "(a) GENERAL RULE.-Except as provided in subsection (b), the amendments made by this part [part II (§§237-241) of subtitle C of title II of Pub. L. 97-248, enacting this section, amending sections 72, 401, 404, 408, 414, 415, and 1379 of this title, and repealing section 4972 of this title] shall apply to years beginning after December 31, 1983. "(b) ALLOWANCE OF EXCLUSION OF DEATH BENEFIT FOR SELF-EMPLOYED INDIVIDUALS.-The amendment made by section 239 [amending section 101 of this title] shall apply with respect to decedents dying after December 31, 1983."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998For provisions directing that if any amendments made by subtitle D [§§1401-1465] of title I of Pub. L. 104-188 require an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101-1147 and 1171-1177] or title XVIII [§§1800-1899A] of Pub. L. 99-514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99-514, as amended, set out as a note under section 401 of this title.
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- State
- The term "State" shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- person
- The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
- stock
- The term "stock" includes shares in an association, joint-stock company, or insurance company.