Former key - top heavy minimum, gateway?

[Guest Nia_phyte]

Partner in a safe harbor new comp plan with each participant in his/her own group is a former key employee - currently 3% owner with K-1 compensation under $100,000. Partners excluded from safe harbor contribution to give each partner flexibility in terms of profit sharing contribution. Plan is top-heavy and PS contribution is being made for 2009. IRC Section 416 and regs mention key, nonkey and former key employees as three distinct groups (my interpretation), but I cannot find anything that states whether or not a former key employee is included in the nonkey employee group for purposes of a top-heavy minimum contribution. In this case, the partner would be paying for a contribution for himself that he does not want to make - and then presumably, he would receive a gateway contribution??? Am I missing something that will give me the answer I want, i.e., former keys do not receive the top-heavy minumum?

[rcline46]

The partner is up a creek without a paddle. He should have been excluded from the plan by name to avoid the TH minimum.

[Kevin C]

Are the partners excluded from the SH contribution? Or, are HCE's excluded from the SH? With 3% ownership and <$100,000 in comp for 2009, this partner is NHCE in 2010 and must be eligible for the SH for 2010 if able to defer. Otherwise, the plan is not SH. Was this partner HCE or NHCE for 2009? If NHCE, the document should say this partner gets the 2009 SH contribution.

[Guest Nia_phyte]

The partner is up a creek without a paddle. He should have been excluded from the plan by name to avoid the TH minimum.

Thanks Rcline and Kevin - We did some additional research and found the answer in Publication 7002 (3-2006). You are correct - the former key must receive a top-heavy minimum.

[BG5150]

Does being a "former key employee" affect anything other than excluding that person's balance from the Top Heavy test?

[Guest Key Lime Pie]

Is there a difference between an Active Former Key and an Inactive Former Key? It appears that even an Active Former Key is excluded from the Top Heavy Determination Calculation.

Does being a "former key employee" affect anything other than excluding that person's balance from the Top Heavy test?