Top Heavy Determination

[Guest AHS527]

Is there any way to limit the number of key ees in the top heavy test? I've heard conflicting information regarding possibly limiting the number of officers counted as key for testing purposes.

Thanks in advance.

[QNPG]

Is there any way to limit the number of key ees in the top heavy test? I've heard conflicting information regarding possibly limiting the number of officers counted as key for testing purposes.

Thanks in advance.

Excerpt from the ERISA Outline: Chapter 1A - Important Definitions - Part 1 (K) Key EE definition:

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"There is a maximum number of officers that are treated as key employees. The maximum is 10% of the number of employees or 3, whichever is greater. However, no more than 50 officers are treated as key employees, even if the 10% cap is greater than 50. IRC §414(q)(5)(A). The number of officers taken into account under the 10% rule is determined by disregarding the employees excluded for purposes of the top paid group test under the highly compensated employee definition. IRC §416(i)(1)(A), last sentence. For a description of these excluded employees, see Part A.2.c. of the highly compensated employee definition in this chapter. If the 10% number is not a whole number, the limit is increased to the next whole number. Treas. Reg. §1.416-1, T-14. For example, 10% of 43 employees is 4.3, so the limit on the number of officers is 5.

2.b.1) What if the number of officers exceeds the limit? If there are more officers who satisfy the rule described in 2.a. above, the officers are ranked by compensation to determine which ones are key employees. For example, if the limit on the number of officers is 3, but there are 5 officers who earn more than the compensation requirement, the top 3 paid officers would be treated as the key employees.

2.b.1)a) Doesn’t matter whether officer also satisfies another key employee test. The ranking of officers by compensation is done without regard to whether any of the officers also satisfies one of the other key employee tests. For example, suppose there are 6 officers who satisfy the compensation requirement, but the limit on the number of officers is 4. The officers are ranked as follows, in descending order of compensation:>"

Hope this helps.

[Guest AHS527]

Thanks!!!!