Key Employees - Top Heavy

[Guest Shaf]

Quick question regarding key employees. I ran across somewhere stating that there is no longer a look back on Key employees on the Top Heavy Test. Is this correct?

Example - Key employee in 2003 (Highly Paid Officer), was terminated in June of 2004. Never made the $130,000 required under the Highly Paid Office category. Is he still concidered a Key employee for the 2004 plan year end?

Thanks,

SHAF

[jaemmons]

Only if he/she was a 5% or 1% owner(and had gross earnings of >$150,000). Key employee determination for post 2001 plan years is made based on current year information. EGTRRA '01 eliminated the 5 year look back rules (except for in-service distributions).

However, if this individual is not considered a key employee for 2004, he/she is a "former" key employee for 2004 and their account balance, plus applicable distribution history, is disregarded when determining top heavy status for the 2005 plan year.

[Guest Shaf]

I do remember them eliminating the 5 year look back on the owners, but I'm wondering if there is still a 1 year look back on any key employees for the current plan year?

Is it only for the current plan year or is there a determination period of the current plan year and the preceding plan year?

Thanks again,

Shaf

[jaemmons]

Post 2001 plan years, all key employees and former key employees are determined using current plan year ownership, officer status & compensation information (this is your determination year). There is no 1 year lookback for identifying current key employees. The lookback periods come into play when determining any in-service distributions which need to be added back for any employees who had 1 hour of service in the determination year.

[Blinky the 3-eyed Fish]

I disagree with the last post. The EGTRRA change removed the 5-year lookback and replaced it with a 1-year lookback, except in-service distributions continue to have a 5-year lookback. Example for a 2004 calendar year plan:

Determination date is 12/31/03 (assuming it's not a new plan), so you look from 1/1/03 - 12/31/03 to determine who your key employees are for both balances and to see who gets the TH minimum (there is a second viewpoint on the last item but I don't think it's widely held, so I won't mention it). You look at 12/31/03 to determine balances to see if the plan is top heavy. Watch out for former keys. Note how 2004 happenings aren't a factor.

[jaemmons]

Thanks Blinky, but I mentioned the 5 year lookback for in-service distributions previously in this thread. I was only clarifying that identification of key employees does not take into account the 4 preceding plan years (i.e. - no lookback period)

[Blinky the 3-eyed Fish]

I was confused by your current year comments and statement that there is no 1-year lookback for key determination. But it seems we are on the same page, so let's forge on like Sgt. Hulka.