Key Employee Determination

[Guest DTromb]

Off-calendar year plan ends August 31, 2005, and is the first year of the plan.

In determining the top heavy status we use August 31, 2005 to determine top heavy for 8/31/2005 and 8/31/2006 year ends.

Question is, in determining the Key Employee status of an officer we look at compensation earned for the period ending 8/31/2005, however does the compensation have to exceed $130,000 or $135,000?

[stephen]

$130,000. Since the plan year began in 2004 you use the 2004 limit.

(I Stand corrected by Judy below )

[Guest Judy S]

I disagree. Compensation is based on the limit in effect for the calendar year in which the plan year ends-2005 in this case, limit is $135,000. 1.416-1, T-14.

[Guest DTromb]

Ok, so permit me an even more basic question:

In determining the top heavy status for 2005 for a calendar year plan, determination date 12/31/2004, am I looking at compensation earned in 2004 that is in excess of $130,000?

In other words, when the compensation limit changed in 2005 to $135,000, is the $135,000 limit for determination years ending in 2005, or is that limit applied to determination years used to determine the top heavy status of the 2005 year?

In the example above, with a determination date of 12/31/2004, since it is the 2005 plan year that is being determined for, am I using $135,000 as my limit for compensation earned in the determination year ending 12/31/2004?

Sorry, really getting myself confused.

[stephen]

You should use the limit in effect for the determination year.

In your example the 2004 limit of $130,000 will be used for determining who is a Key employee for the 2004 determinaiton year which of course is used for your 2005 plan year top heavy determination.

[Guest DTromb]

Thanks for your information.