Plan is top heavy, and then Key EE takes a dist

[Santo Gold]

A 401k plan with 3 key employees (all family) is top heavy. The father turns age 60, which is also the plan's retirement age, and the plan allows for distribution upon attainment of NRA. If the father were to take all of his money out of the plan, but continue to work and accumulate additional benefits, the plan would no longer be top heavy (excluding his balance, which would be paid out). Can we exclude his pay out after 1 year, or do we have to maintain that as part of the t/h calculation, since he would still be working?

Thanks

[stephen]

You continue to count inservice distributions for 5 years. Thus, his distribution would continue to be counted for five years.

[Santo Gold]

Thanks Stephen. And if he actually retired, left the company, and was then paid, we would only count that for 1 year, correct?

[stephen]

Yes