Key Employee definition under EGTRRA

[Guest Jane Freeman]

For a new 401(k) plan in 2001 (1/1/01 to 12/31/01 plan year) which key employee definition do you use to determine the top-heavy status of the plan for the 2001 plan year? It is my understanding that the new definition of key employee under EGTRRA can be used to determine if the plan is top-heavy for the 2002 plan year. Can this new definition also be used for a 1st year plan to determine the top-heavy status for 2001 or will 2 top-heavy determinations have to be done for the 1st year 2001 plan?

Any guidance will be appreciated.

Thank you.

[Tom Poje]

the new rules are effective for plan years begining 1/1/2002.

Interesting, though.

you could end up with some former keys as a result

[stephen]

Tom,

Does your respoinse mean you think there needs to be two separate key employee determinations even though this is the first plan year?

[R. Butler]

There does need to be two separate tests. The interesting question is how are administrative software will handle that.

[Tom Poje]

I am sure the software will be written to handle it, but the question will be the timing.

some changes, like catch up contributions, really doesn't need to be done until the end of 2002.

but top heavy, that is here and now in another month and a half. throw in Thanksgiving and Christmas....

are you a betting man Butler?

[R. Butler]

I wouldn't bet the house on changes by year end. Fortunately for me most of our plans our small to medium sized; worse case scenario I can manually go into the Census and pick my key employees. I hate to do that because it eliminates a cross check, but you gotta do what you gotta do.