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Is a Frozen Defined Benefit Plan Subject to the Top-Heavy Minimum Benefit Rules?

Yes. A frozen defined benefit plan must meet the top-heavy minimum benefit rules.

A frozen plan may be one in which benefit accruals have ceased but all assets have not been distributed to participants or their beneficiaries. A defined benefit plan is top-heavy if, as of the determination date, the present value of the accrued benefits under the plan for the key employees is more than 60% of these benefits under the plan for all employees. If a frozen DB plan is top-heavy, it must provide top-heavy minimum benefit accruals to all non-key employees.

Many employers sponsor both a defined contribution and a defined benefit plan. In many instances, these plans’ provisions require the defined contribution plan to provide an extra minimum top-heavy contribution covering employees in both plans instead of the defined benefit plan crediting top-heavy minimum benefit accruals for these employees.

Alert: Employers that are amending a defined benefit plan to freeze benefit accruals should carefully review the plan’s top-heavy language. If these employers also maintain a defined contribution plan, they may want to amend both plans so that any top-heavy minimums are provided under the defined contribution plan. These amendments would avoid the frozen defined benefit plan having to provide minimum benefit accruals if the plan becomes top-heavy.

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Page Last Reviewed or Updated: 30-Jan-2014