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I have a client who has dropped down to 57 1/2% on the top heavy test and is so happy he doesn't have to do the top heavy minimum for the 2016 plan year. He is now the sole owner, and his son also works there, but doesn't defer into the plan. The former co-owner sold his shares to the current sole owner in July 2014. Is he still counted as key for 5 years (2014 thru 2018) for determining Top Heavy? My client is trying to do some planning to see if his son can defer, and someone I talked to thought this had changed...the number of years a non-key is counted in the test. Note the former co-owner still works there and still has assets in the plan.

We have a client who would like to allocate a Top Heavy contribution to both Key and Non-Key employees. The language in the document regarding Top Heavy allocations is as follows: Each Non-Key Employee who is a Participant, or was eligible to be a participant in the plan year, and is employed by the Employer on the last day of the Plan Year will receive a top-heavy minimum allocation for that Plan Year, irrespective of whether he or she satisfies the Hours of Service condition under the Employer's Adoption Agreement... Based on this language, is it permissible to allocate to Key employees? Any feedback is appreciated! Thank you

We have a small employer with less than 15 employees, they offer a group health plan to employees with ER paying 25% of premium and EE's paying remaining 75% of premium. ER also pays 100% of 1 Key EE's insurance outside of the Cafeteria Plan as a general business expense. When running the necessary non-discrimination tests for the Cafeteria Plan we are including both the ER Paid and the EE Paid premiums for the Health insurance. (1) Is it proper or is ER permitted to exclude the Key EE premiums paid as these were paid outside of the Cafeteria Plan as a general business expense? or does this ER paid premium amount need to be factored in for our Non-Discrimination testing? (2) If the above is not permitted, can we elect to run our Non-Discrimination testing only looking at the EE's portion of the Health Insurance premiums being paid? Thus the ER paid premiums would not be included in the Non-Discrimination testing. Problem is that with the Key EE's ER paid insurance premiums factored in the Cafeteria Plan fails the 25% concentration test. Thank you for any assistance with this question - Nathan

We have a company that is owned by several trusts at 20% ownership each. Each individual is the primary beneficiary of their respective trust, so they are considered 20% owners of the company. However, are the children of the beneficiary of the trust also attributed 20% ownership of the company? This scenario has come up due to key employee determination for Top Heavy. My initial instinct says yes, but I would appreciate any feedback and/or reg citations. Thank you!

I apologize in advance if I've missed something in my cursory research of this, but here goes. Also, for simplicity I am assuming the employer in question only has DC plans, but I don't think that makes a difference. Clearly, to determine whether a plan is top-heavy for a "plan year" you use account balances as of the "determination date," which also quite clearly is the last day of the plan year preceding the plan year for which the determination of top-heaviness, or not, is being made. E.g., to determine whether a plan is top-heavy for a calendar year 2019 plan year, you use balances as of 12/31/2018. There are potentially also certain addbacks to determination date account balances of keys and nonkeys for distributions that were made during the plan year preceding the year for which the top-heavy determination is made (i.e., in my example, during 2018 for the 2019 top-heaviness determination), or potentially during a 5-year period in the case of some distributions. See IRC secs. 416(g)(1), (3), and (4)(C). And of course you have aggregation rules. So the above gives you your key and non-key participant balances for purposes of determining whether more than 60% belong to keys. But then you have to figure out whether those balances belong to keys or non-keys. IRC sec. 416(I)(1) [Note: the "I" in 416(I)(1) should be lower-case, but I can't make that happen; sorry] tells you that the keys are the folks who meet certain requirements, e.g. percentage of ownership of the employer, "at any time during the plan year." Just looking at 416(I)(1) [see previous note], it would seem that the "plan year" being referred to for identifying keys is the current plan year, i.e. the year for which you are making the top-heavy determination, i.e. 2019 in my example. At least, that's what I think, because 416(g)(1) tells you that a plan is top-heavy "with respect to any plan year," and to me, when 416(I)(1) says "during the plan year," they are talking about the same plan year. So it seems to me that based on the statutory language you would use ownership and compensation in 2019 to determine who are your keys and non-keys, and then you would go back to 12/31/2018 to see what those folks' determined to be keys based on their 2019 facts had in the plan for purposes of the "more than 60%" test. But Treas. reg. 1.416-1, T-12 seems to say pretty clearly that the "plan year" being referred to in 416(I)(1) is not the plan year for which you are making the determination (i.e., 2019 in my example), but rather 2018. It does this by adding "containing the determination date" to 416(I)(1)'s simpler "plan year." I guess when, before EGTRRA, you looked back 5 years to determine who were your keys (i.e., the keys were participants who at any time during "the plan year or any of the 4 preceding plan years" met one of the status tests), and under pre-EGTRRA Section 416(g) you were also dragging back in all distributions made during the 5 plan years ending on the determination date, it may have made sense for the IRS to want the same 5 year period for both purposes, i.e., the IRS may have been trying to simplify. But if that was the reason for departing from what otherwise seems the very plain statutory language of 416(I)(1), it no longer seems valid, since using balances as of the end of the previous year, and status as of any time in the current year, seems just as easy to do now. Has anyone else had an issue with this? To anyone's knowledge, has the IRS ever commented on this, formally or informally?