Key employee explained

Key employee, in U.S. Internal Revenue Service (IRS) terminology, is an employee classification used when determining if company-sponsored qualified retirement plans, including 401(a) defined benefit plans and 401(k)s, are considered "top-heavy" or, in other words, weighted towards the company's more highly compensated individuals.[1]

A key employee is defined by the IRS as an employee, either living or dead, who meets one of the following three criteria:

All other employees are referred to as non-key employees.[2]

There are some similarities between key employees and so-called highly compensated employees (HCE), but the compensation salary threshold is lower for HCEs, at only $120,000 versus $150,000 for key employees.[3]

See also

Notes and References

  1. Web site: Key Employee. investopedia.com . 2016-04-01.
  2. Web site: 401(k) Plan Fix-It Guide - The plan was top-heavy and required minimum contributions weren't made to the plan. . irs.gov . 2015-10-23 . 2016-04-01.
  3. Web site: Definitions. irs.gov. 2016-10-26 . 2016-04-01.