Top Heavy

[ratherbereading]

A plan has 2 new owners as of 2015. Each owns 50%. They were not owners at any time previous to 2015. Do they go on the top heavy test run in 2015, which is for determination date 12/31/16?

Our office is having a heated discussion about this.

[Mr Bagwell]

Yes they go on the top heavy test for 2015. They are 5% owners.

Generally determine top heavy status on last day of preceding PY: 12/31/2015 to determine TH status for calendar year plan for 2016. Exception: for first year of new plan, use last day of first PY.

Heated discussion? Interesting.....

[ratherbereading]

Thanks, Mr. Bagwell. Heated as in some people do not believe they should be on the test, or listed as keys for 2015.

[Mr Bagwell]

Are the two owners employees?

Maybe should have started there....

[ratherbereading]

Yes, they are eligible employees.

[Mr Bagwell]

My answer stays the same then.

Good Luck

[ratherbereading]

Thanks so much!

[Bill Presson]

I would be curious to see the argument for why some people think they should not be keys for 2015.

[Lou S.]

I would be curious to see the argument for why some people think they should not be keys for 2015.

I've seen the argument presented that because they were not keys on the determination date of 12/31/2014 they can't possibly be keys for 2015. Even though that contradicts the plain reading of the statute that says if you own more than 5% in the current or prior year you are a key for the the year.

To me I'm with you I have no clue how someone could determine they are not key employees in 2015.

[My 2 cents]

If they weren't keys on 12/31/2014, then they would not be treated as keys to determine if the plan was top-heavy in 2015 (testing is done as of 12/31/14). If they were keys on 12/31/2015, then they are keys in determining if the plan is top-heavy in 2016 (testing is done as of 12/31/15). Always found that sort of thing a bit confusing!