Help ASAP! Former Key Employee Accounts

[sloble@crowleyfleck.com]

Top Heavy rules provide that, for purposes of determining whether a plan is top-heavy, you must exclude the account of any non-key employee if that employee was a key employee in any prior plan year.

What if an employee is a key employee (a partner), then is TERMINATED AND RE-HIRED as an of-counsel non-key employee. Can we consider the re-hired employee a non-key employee and consider their account for purposes of top-heavy testing?

The ability to do this would turn our 68% top heavy plan into an under-60% non-top heavy plan!

[rcline46]

We need more details - when was the partner bought out/liquidated and when were they rehired?

Also need to know their age, as I think I remember that if you were ever a Key employee after a certain age (55) you would always be Key.

Any familial relationships that might trigger being Key?

[sloble@crowleyfleck.com]

Here are more details:

I'm not sure whether partner is over age 55--let's assume he is (does that really make a difference?)

He was a partner (and a key employee) prior to 2002. As of 1/1/02, he became an of-counsel W-2 employee. He still has the same account under the profit-sharing plan (he did not take a distribution, although he could have on termination I presume).

I hope this helps.

[Tom Poje]

it does not sound like he really terminated, rather switched 'jobs'.

It sounds like he would simply be a 'former key' and therefore excluded entirely.

[sloble@crowleyfleck.com]

Thanks, thats what we suspected and feared.