What is proper key employee compensation for a fiscal year plan?

[Guest 410b]

A fiscal year plan ending in May 2009, reported as 2008 on the tax return.

For the top heavy test, are key employees determined in reference to the 2008 limit which is the tax return year or the 2009 limit which is the end of the plan year?

[Guest Sieve]

First of all, there is no cost-of-living adjustment for the 1% owner's $150,000 compensation.

The cost-of-living increase for the officer + $130,000 category of TH is based on the IRC Section 415(d) increase, except that "plan year" is used rather than "limitation year". (IRC Section 416(i)(1)(a).) Prior to its recent amendment, the TH dollar limitation for officer was based on the IRC Section 415(b) limit and, before that, the IRC Section 415© limit (as adjusted annually) . The rules of IRC Section 415(d) apply the calendar year cost-of-living adjusted limits (for IRC Sections 415(b) and ©) to limitation years (thus, plan years) which end with or within that calendar year. (Treas. Reg. Section 1.415(d)-1(a)(3). And, see Treas. Reg. Section 1.416-1, Q&A-14.)

So, in your example, use the 2009 calendar year limit for the plan year ending 5/31/2009 (the calendar year limit for the plan year ending within that calendar year)--i.e,., $160,000.

[Guest 410b]

Thank you.