Final answer:
The statement is true, as top-heavy plans are required to adhere to minimum vesting standards, including at least a 3-year cliff or a 2-6 year graduated vesting schedule to ensure fair benefit distribution.
Step-by-step explanation:
The statement that the benefits provided to a plan participant under a top-heavy stock bonus plan must vest at least as rapidly as a 3-year cliff or 2-6 year graduating vesting schedule is true. A top-heavy plan is one generally where more than 60% of the plan assets are attributed to key employees. The Internal Revenue Code requires such plans to meet certain minimum vesting standards to ensure that non-key employees are not at a disadvantage.
The two minimum vesting schedules that top-heavy plans must offer are:
- A 3-year cliff vesting schedule where an employee must be 100% vested after completion of three years of service.
- A 2-6 year graduated vesting schedule where an employee vests at least 20% after two years of service, with vesting increasing by 20% each year until they are fully vested in the sixth year.
These requirements are essential to protect the rights of plan participants and ensure a fair distribution of retirement benefits, regardless of the employee's status within the company.