Definition of Non-Key Employee & required TH minimum

[Guest M. Martin]

In the plan document we use the definition of Non-Key Employee is: any Employee or former Employee (and such Employee's or former Employee's Beneficiaries) who is not, and has never been, a Key Employee.

This may seem overly simplistic but in following the plan document definition does this mean that a participant who is former Key will never be required to receive a 3% minimum contribution?

[Blinky the 3-eyed Fish]

I wouldn't define the document's definition of a non-key employee as simplistic, but rather as incorrect for the point you mentioned. A non-key (former or not) is entitled to the TH minimum. You need to correct the document.

[david rigby]

Whether a TH minimum is given to Key EEs is a function of the plan document, not the statute. The bigger issue, which Blinky alluded to, is that the TH test must be done according to how the statute defines a Key EE. If this plan throws a few "extras" in the TH test, it may or may not affect the result.

[Blinky the 3-eyed Fish]

Pax, the definition stated would mean that some statutory non-keys (i.e. former keys) would not be considered non-keys according to the document. Again, according to the document, these people would not get a TH minimum contribution. That is the problem. It's not that some statutory keys are getting the TH minimum.

[david rigby]

Well, who gets a TH minium is the second issue. The first problem is who is in which group, just to perform the test. Worry first about whether the test is correct.

[jquazza]

M. Martin, read your document again, I wouldn't be surprised if that definition of non-key employee is strictly used for the purpose of the TH ratio. For the TH minimum contribution, the plan might say something like any eligible participant who is not a key employee is entitled to a TH minimum, which would be different than a non-key.

Anyway, that's my guess, read your document again, otherwise, I agree with Blinky, your document should be changed.

[Blinky the 3-eyed Fish]

Pax, the determination that the plan is TH can often be made without running the test because it is so obviously TH, but you are correct that you do need to make that determination.

Jquazza, that explanation is very plausible.

[Guest M. Martin]

Blinky's response is the correct interpretation, with the question being that if the plan document states that a former key is not a non-key employee are they excluded from receiving a TH minimum?

This is a plan that is well above 60% for testing purposes and we know that the participant involved will be a former Key for the 2004 test. Due to a status change mid-year the participant will not be eligible for the regular PS cont., so we are trying to determine in advance if a 3% min. will be required.

The allocation method in the document reads "for any Top Heavy Plan Year, the sum of the Employer's contributions and Forfeitures allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to at least three percent (3%) of such Non-Key Employee's 415 Compensation..."

The document is prepared by Corbel so I have sent an inquiry to them as well in order to find out what the intent of the definition is.

[jquazza]

M. Martin, I believe you're right, it appears there is a flaw in the Corbel doc that the IRS didn't catch when they approved it. The Former keys EEs are excluded from the TH ratio in Section 9.2 of the document. For allocation purposes, the document refers to non-ney ees which is defined as you described in your prior post. Please, let us know what C. Hoffman has to say about that. The other SunGard doc (PPD) doesn't exclude the former keys from the non-key EEs definition.