I am 99% sure that I know the answer to this question, but thought it was interesting enough to put out for comment. 100% Owner decides that he want to retire. He sells the business to his two children and takes a full distribution from the plan. 2 years later, he decides that he want to come back to work as an employee and now wants to roll his balance back into the plan. (We have already tried to stop him from doing so, but he still want to do it.) The question: Is he a key employee? My thought process is that he is because he was a key when he sold the shares and remained a key because his children own the company. When he comes back, he would again be a key because his children still own the company. (The joy of stock attribution!!)

Additionally, because he was and is a key, he was never a former key. Therfore, his rollover balance would count in the top heavy test in both the numerator and the denominator.

Agree or disagree? If disagree, why?

Is dad a key EE on rehire? Yes, if his children yet have a combined 5% or more ownership.

Has dad been a key EE all along, even when he neither owned nor worked for the company? I don't think you can be a key EE during the time you were not an EE.