Top Heavy Test, Key in current plan year, but not last year.

[Jean]

How is the top heavy test ratio calculated if an individual is a key employee in the plan year (2000), but was one not as of the determination date (12/31/1999)?

I am not sure if the 12/31/99 balance is include in the key employee total balances. I know the individual would not receive the top heavy contribution.

[Richard Anderson]

Once a person becomes a key employee their entire account balance is included in the top heavy test. You would not exclude the portion of the account balance that existed before becoming a key employee.

Be sure to check the plan document. Many plans will specify that key employees also receive the top heavy contribution.

[Guest Hans Moleman]

For your case, the employee was non-key as of the determination date. Therefore, when running the test his balance is not included in the key employees' balances.

[Richard Anderson]

Jean,

Are you now doing the 2001 top-heavy test, using 12/31/2000 account balances and key employees as of 12/31/2000? That is my understanding of your question.

[Jean]

This is the 2000 plan year test (calendar yr)using the 12/31/99 account balances. The individual was not a key on 12/31/99, but is one in 2000.

There seems to be a conflicting answer.

[Richard Anderson]

I don't understand the original question. Are you asking; do you include his balance as a key employee for the 12/31/99 determination because he became a key employee in 2000? If that is the question, then the answer is no.

[Guest]

I think Richard is correct, let us make sure we know what you are talking about.

It sounds like you are saying:

ee was not an owner (with enough comp) or officer meeting the definition of key as of 12/31/99. Therefore his/her account balance is not included in the numerator as of 12/31/99.

in 2000, the ee either became owner or officer and became key in 2000. thus, as of 12/31/2000 the account balance is included in both the numerator and denominator. Therefore, it will increase the chances of the plan providing top heavy minimums in 2001.

[Jean]

Thanks for answers. Tom's summary basically covers my questions. One additional one:

If the plan is top heavy (again, 2000 plan year, using 12/31/99 determ date), then would that individual considered a key, and in our plan, not receive an allocation?

[david rigby]

Top-heavy status is determined as of 12/31/99 in this case. That means that Key and Non-Key status is also determined as of that date. If T-H, then the plan will define who gets the T-H allocation in 2000 (or generically, in the next plan year). The plan will state either Non-Keys get T-H allocation, or that all participants get it.