Fundamentals of Risk and Insurance Briefly describe the special requirements that apply to a top-heavy plan....

Fundamentals of Risk and Insurance

Briefly describe the special requirements that apply to a top-heavy plan. Why were these requirements enacted?

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Ans:

The top heavy plans which provide disproportionate share of their benefits to highly paid executives or founders (owners) are subject to the special requirements which is that the top heavy plan allocates 60% of the account balance (or benefits that are accrued) to a group known as the key employees,

The key employees (during the plan) are those who:

Officer earning $130,000
5% owner of firm
or a 1% owner who is earning $130,000

This type of special requirement is enacted so that the plan provide minimum benefits for the rank and file workers, who does not hold high level position.

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