key employee

[mehmgo]

i have a calendar year 401k plan. one of the 5% owners sold all his shares back to the company as of 12/31/12. would he and his children who work at the company be considered key employees for the 2013 plan year end since he does not own any stock during the plan year? is the look back year still the correct way to determine the key employees for this situation?

[Archimage]

Your determination date is the last day of the prior plan year. In your example, they would be considered key employees for 2013.