My employer (small startup, California, 16 people) claims they want to add a 401k but their current concern would be penalties for a 'top heavy' 401k, where some employees contribute much more than others.

Has anyone added a 401k to their small company or found a workaround/solution to this? I found a plan I'd like to pitch to the COO, but I'd also like to suggest a solution to the top heavy concerns


  • 3
    1. Look into adding a Safe Harbor plan. 2. Consult with an expert who works in this area. This issue requires experienced (and legal) advice/guidance.
    – joeqwerty
    Jun 4, 2019 at 2:37

1 Answer 1


At my previous employer they handled it by putting a cap on HCE (Highly compensated employees) contributions to 401k to be no more than the average % contribution of all the other employees from the previous year.

Alternately the employer could just deal with the consequences, which according to the IRS are:

If a 401(k) plan is top-heavy, the employer must contribute up to 3% of compensation for all non-key employees still employed on the last day of the plan year. This contribution is subject to a vesting schedule requiring participants to be 100% vested after three years; or 20% after 2 years, 40% after 3, 60% after 4, 80% after 5 and 100% after 6 years.


Doesn't seem like a bad compromise

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