Case of the Week: Who Is an Officer for Top-Heavy Determination?

John Carl

The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Tennessee is representative of a common inquiry involving top-heavy testing. The advisor asked:

“Who is considered an officer for the purposes of performing the top-heavy test for a plan?”

Highlights of Discussion

The definition of officer for top-heavy purposes may not be as straightforward as one might think. First, let’s review the top-heavy determination rules.

With some exceptions, in order for a retirement plan to be considered “qualified” under Internal Revenue Code Section (IRC §) 401(a), it must satisfy the special rules for top-heavy plans outlined in IRC §416 [IRC 401(a)(10)(B)].

A defined contribution plan is top-heavy if the total of the accounts of the key employees under the plan exceeds 60% of the total of the accounts of all employees under the plan [IRC §416(g)(1)(A)(ii)]. Top-heavy plans must meet minimum contribution and vesting requirements.

A key employee is any employee who at any time during the plan year containing the determination date (the determination date year) is an officer who meets a compensation threshold, a 5% owner of the employer, or a 1% owner of the employer who meets a compensation threshold [IRC 416(i)].

The key employee officer compensation threshold for 2017 is $175,000. The key employee 1% owner compensation threshold is $150,000.

The definition of officer is found in Treasury Regulation 1.416–1, T–13. Generally, the term “officer” means an administrative executive who is in regular and continued service, and excludes those employed for a special or single transaction.

Specifically, however, the officer determination is based on facts and circumstances — not just on title or function. Factors considered include:

  • source of authority;
  • length of term; and
  • nature and extent of duties.

Importantly, an employee who merely has the title of an officer but not the authority of an officer is not considered an officer for purposes of the key employee test. Similarly, an employee who does not have the title of an officer but has the authority of an officer is an officer for purposes of the key employee test.


Plan sponsors and their service providers must be aware that the definition of officer for top-heavy testing purposes is based on facts and circumstances. Therefore, each situation must be carefully evaluated to ensure the proper individuals are included or excluded as appropriate.

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“Case of the Week” is the winner of an APEX Award for Publication Excellence for 2017.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2017, Retirement Learning Center, LLC. Used with permission.

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