Former Key/Top Heavy/EGTRRA

[Brenda Wren]

I have an odd situation I can't seem to figure out even though we have received guidance on this issue from Notice 2001-56. A law practice "divorced" in 2000 and 2 of the 3 partners received distributions in 2001. The 2 partners owned no stock in 2001. I understand that distributions in 2001 are taken into account for the 2002 top heavy determination. But are the former partners considered Key, Non-key or Former-key? It doesn't appear that they would be Key under EGTRRA (no stock ownership in lookback year), but it seems odd that I can use their distributions to essentially bring the plan out of top-heaviness. Any thoughts?

[Richard Anderson]

Did the 2 partners have either income or equity ownership of more than 5%? If so, they are owners for key employee purposes.

[Brenda Wren]

The two partners owned more than 5% in 2000, but not on 12/31/00 and not at all in 2001. I understand under EGTRRA that 2001 is the lookback year for identification of key status....Notice 2000-56.

[Tom Poje]

I am assuming you mean when determining if 2002 requires a top heavy minimum.my guess would be they are former-key, since they ceased to be key. and now we are under a 1 year period instead of 5. these new rules for 2002 sure are lots of fun.

[Brenda Wren]

Thanks, Tom. So your opinion is they are Former-key, right? Does that mean I take their distribution out of both sides of the fraction...disregard it all together? Or does that mean as a former-key, their distribution remains on the key side?

[Tom Poje]

remember, my opinion could be wrong! I think liver is disgusting.

in regards to former keys, it was my understanding that you completely ignore their account balance. I have never heard how their distributions would be handled, but pretend they weren't paid out. under the new rules, at 12/31/01 since they are former keys you would not include their balances. my logic says it makes no sense to include their amounts just because they got a distributions.

I used to use the same argument under the old rules. you ignore people after 5 years of no service. now, just because they receive a distributions, it makes no sense to start including them again.

hope that helps!

[Disco Stu]

I completely disagree. Liver (when properly prepared) is delicious.

Regarding the top-heavy stuff...my reading would be in agreement with Tom's. Although I can't imagine anyone really caring that much about top-heavy issues in the face of such blasphemy about liver.

[Tom Poje]

yeh, anybody with a name like

disco

must have a great opinion of music as well.