When doing a top-heavy test, to determine the officer limit, do you count employees that were employed at any time during the plan year, or only those that were employed on the determination date? For example:
Say there are 10 officers (with $130,000 in comp.) in a plan with a determination date of 12/31/01.
The employer has 50 active employees on 12/31/01.
The employer has 10 employees that terminated on 1/15/01.
Those 60 are the only employees employed at any time during 2001.
How many key employees are counted due to being officers, 5 or 6?

For this purpose, assume that all 60 worked the full year in 2000.

Also, change the above so that, after 10 employees terminate on 1/15/01, 10 new employees are hired 1/31/01. Then 10 more employees who worked in 2000 terminate employment on 2/28/01.

Would this increase the number of officers counted to 7 (since 70 employees worked at some time during the 2001 calendar year, even though the employer never had more than 60 employees at any one time)?

See Q&A T-14 of the 416 regs. The relevant quote is:

"The number of employees an employer ... has for the plan year containing the determination date is the greatest number of employees it had during that plan year or any of the four preceding plan years. For purposes of this Q & A, employees include only those individuals who perform services for the employer durint a plan year."

So, it ain't that easy! For 2001, in your first case, the number is 60. In your second case, the number is still 60, because you never had more than 60 employed at any one time.

But you need to go back and get four prior years' worth of data to determine the maximum number of employees.

Fun stuff, huh?

Thanks, Mike. One thing - since I used 12/31/01 as the determination date, I think I'd have to use only 2001, since plan years beginning in 2002 with a 12/31/01 determination date use the EGTRRA rules. I agree with having to go back another 4 years if the determination date was prior to 12/31/01.

I would be curious if others agree with Mike that the proper number would be 6 rather than 7. Anyone else?

I couldn't tell from your original posting whether this was a new plan for 2001 or 2002. If it is a new plan for 2002, then I think you are correct, although I'd have to pull the law to confirm.

On the other hand, if it is a new plan for 2001, then you would use the four year lookback.

Top heavy regs. 1.416 http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html

Not sure from the original post if someone is defining officer by reference to the compensation. In Q&A T-12, it points out that you consider officers if the comp exceeds a certain limit. But also see Q&A T-13, which points out that an officer is not determined by title.

pax,

Thanks, but the definition of officer is not a problem. The main point of the question is how to interpret "the greatest number of employees it had during that plan year or any of the four preceding plan years." Does this mean at any one point in time during those years, so the greatest number would be 60 in the last part of the original question? Or does that mean to compare each year using all employees that were employed at any time during the year (with the exceptions removed of course), so that the number for 2001 would be 70 in the example above, and this (under the pre-EGTRRA rules) would be compared to the numbers in each of the 1997-2000 years?

In other words, we know it has to be the greatest number from the 5 years. But how is the count done within a single year?

My interpretation of the reg is that you count the number of employees on December 31, 2001 and call that X(0), you count the number of employees on December 30, 2001 and call that x(1).... you count the number of employees on January 1, 1997 and call that x(1825). You use the result of max(x(0)......x(1825)).

mike

Thanks, Mike. What I'd like to know is if others agree with your interpretation or not.

There are some in our office that believe the interpretation should be: count all employees employed at any time during 1997 - call this x(1997). Count all employees employed at any time during 1998 - call this x(1998). The number to use is the result of max (x(1997),x(1998),x(1999),x(2000),x(2001)) [using pre-EGTRRA rules]. For an employer with a lot of turnover, this could create a very different number, although the exclusions will mitigate that somewhat. Under the method above, an employer who employed 100 different people during 1997 would use 100 for 1997, no matter what the number employed on any one day was. Under your interpretation, that number would shrink to the greatest number employed on any one day in 1997 (which might be 70,80, etc.).

I'm curious which interpretation others take, and whether or not there has ever been formal or informal guidance on which approach to take.