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February 17, 2009

Key Employee

Your Guide

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Definition

An employee who, at any time during the plan year, is
(i) an officer of the employer having an annual compensation greater than $180,000,

(ii) a 5-percent owner of the employer,

(iii) a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000 (indexed for inflation) .

A plan is determined to be top heavy , if the following applies:

  • Defined benefit plan if, as of the determination date, the present value of the cumulative accrued benefits under the plan for key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, and
  • Defined contribution plan if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan

 

Referring Cite

IRC § 416(i))

Additional Helpful Information

  • For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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