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Exclusion of Key Employee


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I have a client whose plan is top heavy.  They have a 15% owner who does not participate in the plan but has a large balance due to past participation.  They are trying to avoid top heavy status.  Is it permissible to exclude this key employee from the plan and disregard his account balance  (as a former key) from the top heavy calculation?  Thanks

 

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I'm not sure how they are a former key employee where you can exclude their balance since they can never be treated as a non-key.  They are still a 5% owner and are considered a participant since they have a balance in the plan. 

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No. A key employee is a key employee regardless of whether they are eligible.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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2 hours ago, retpc said:

I have a client whose plan is top heavy.  They have a 15% owner who does not participate in the plan but has a large balance due to past participation.  They are trying to avoid top heavy status.  Is it permissible to exclude this key employee from the plan and disregard his account balance  (as a former key) from the top heavy calculation?  Thanks

 

Interesting; how do you figure he is a "former key"?  He is STILL a key employee, just not participating in the plan.  

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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