For top-heavy testing purposes, how long does a key employee remain a key employee after a severance of employment from the company?
 
When a key employee terminates employment, he or she is still a key employee in the year containing the termination date, provided they have earned income during that year. However, when testing the next year's determination date -- in which the key employee had absolutely no earned income -- then the key employee is no longer key.

Example 1
A key employee terminates on June 23, 2006 in a calendar year plan. To see if the plan is top heavy for 2007, on the determination date of December 31, 2006, this individual is a key employee. To see if the plan is top heavy for 2008, the determination date of December 31, 2007 will not include this individual, provided he or she had no earned income in 2007. 

Example 2
Again, assuming this is a calendar year plan, if a 40% owner terminated on December 31, 2006, the determination date for the 2007 top-heavy test. When testing for top heavy for 2007, using the December 31, 2006 determination date, this person would be a key employee. When testing for 2008, using the December 31, 2007 determination date, again, provided that there was no earned income for this individual in 2007, this person would not be a key employee for 2007.

 

Is the following a controlled group?

Scenario: Dad, Mom and two daughters, each over age 21.

Company A:  Dad owns 100%.

Company B: Dad owns 30%, Mom owns 30%, Daughter 1 owns 20%, Daughter 2 owns 20%.
 
Dad receives attribution from Mom so that Dad owns 60%. Dad also receives attribution from daughters 1 and 2 as Dad has 60% (more than 50%). Thus, Dad has 100% through family attribution rules and Company A and B are a controlled group.

 
An off-calendar plan has a 7-year graded vesting schedule for employer contributions (other than matching).  The plan year is October 1st  to September 30th. When must the Pension Protection Act of 2006 top-heavy vesting schedule be applied, as of October 1, 2006, October 1, 2007 or October 1, 2008?

The Pension Protection Act of 2006 requires a vesting schedule no longer than a top-heavy vesting schedule to be applied to employer contribution for plan years beginning after December 31, 2006. Thus, the change would be effective for the plan year starting October 1, 2007 and ending September 20, 2008.