A plan is top heavy for the first time in 2002 and the employer is refusing to make the required contribution. In fact, he wants to terminate the plan and be done with it. I understand that failure to make the top heavy contribution is a disqualifying event, but what sanctions could be employer be facing?

Just out of curiosity, is this a 401(k) plan with an employer match?

I haven't met with the employer yet and haven't seen the document. The top heavy issue is the only thing I've been given any information about so far. I'm going to tell him that not making the top heavy contribution is a disqualifying event which means that rollovers would be disallowed, resulting in taxable income to everybody. But are there any sanctions directly to the employer?

To start with, contributions that were deducted by the emploer would be disallowed.

Yes, deductions would be lost. But I don't find anything that says the employer would face some kind of excise tax. For example, if it were a $500,000 plan and there's a 10% penalty to the employer if the plan were to be disqualified, he'd be paying a $50,000 fine. Other than the loss of deductions and the taxability of all distributions, there doesn't seem to be any other penalty imposed. Is that correct?

But that does not mean that all prior deductions would be disallowed.

It seems from your question that the employer is contractually obligated to make the top-heavy contribution. It probably would be easier to make the contribution than to deal with ERISA suits to force the contribution and claims against the employer for any tax benefits lost by participants.