I'm converting a plan that has the following scenario:

An active/eligible participant had a QDRO in 2003, which resulted in a deduction of $35,000 from the account. The $35,000 was transferred into an alternate payee's account. The alternate payee then rolled the money into an IRA. Would this payment to the alternate payee and susequent transfer to the IRA be factored into the 2003 top heavy ratio? The plan year end is 12/31.

Barring that this is the first year for a plan, the determination date will be 12/31/02, which is prior to the QDRO. Thus, the QDRO is a non-issue for the 2003 top heavy determination.

If the Participant is a key employee, does a distribution to their Alternate Payee count as an in-service distribution that must be tracked for five years?

Harwood's question is exactly what I'm asking. Has anyone ever researched this issue? I checked the ASPA reference books and was not successful in finding an answer.

this time you didn't look hard enough for at least one suggestion. checking the ASPA reference Book "The ERISA Outline Book" 2003 edition

1.544
"Although not specifically discussed...it would seem appropriate to take a similar approach in the top heavy determination" [that is, the whole paragraph suggest using similar treatment as with death benefits.
if ee is key you include both numerator and deniminator. if non key only in denominator. if former key excluded entirely.

It's clear that the key ee's beneficiary is also included as a key ee. What I'm not clear on is how long it's reasonable to include the QDRO distrib in the top heavy determination. Is it "forever & always til death do us part" i.e., until the actual key ee does not have an hour of service in the determination year; or is it treated like an in-service distrib for 5 years regardless of when the QDRO is actually paid from the plan?

I've seen the ERISA Outline book on this before and it didn't (and still doesn't) make any sense to me. I'm not sure what it means to treat it like a death benefit.

Personally, I'd treat it like an in-service distribution to the participant. Thus, I would take it into account for 5 years.

Unfortunately, there is no guidance from the IRS so it's ultimately up to a reasonable interpretation of the rules.