Top Heavy plan but everyone is highly compensated

[Guest smhjr]

With all the mortgage brokers and construction companies making hand over fist right now, I have seen a lot of clients looking to put as much money into theri plan as possible right now. They are all assuming that their income and contributions will be dropping within the next few of years.

The client in particular that i have in mind is a plan with just two individuals, both 50% owners of the company. They are considering putting their parents on the payroll and making contributions for them. There are no other employees. They have said that the parents will be doing a legitimate job for them that will justify the pay. The quesition though is can they put a 5 year cliff vesting schedule in the plan?

Obviously with the plan being top heavy, normally the vesting schedule would default to a 3 year cliff or the 2/20 vesting. But since everyone is highly compensated do we have to go to the top heavy vesting schedule or could we keep the five year cliff as long as everyone is highly compnesated?

[jquazza]

Highly compensated employees are not necessary key employees, so your vesting schedule has to satisfy the top heavy minimum vesting.

[R. Butler]

If the only the employees are 2 50% owners & the owners' parents then all the employees are key. However, I do agree that you have to use a top heavy vesting schedule.