Who is a "key employee" in retirement plan testing, and why does it matter for top-heavy status?

• A. An officer or owner meeting certain thresholds; used to determine top-heavy status and related requirements.
• B. A non-union employee with longest tenure; used to determine vesting.
• C. A part-time employee; used to determine eligibility.
• D. A retiree; used to determine required minimum distributions.

Answer: (A)

In retirement plan testing, the key factor for top-heavy status is whether the plan contains a key employee—typically an officer or owner who meets certain compensation or ownership thresholds. If such a person exists in the plan year, the plan is considered top-heavy, which then triggers special rules to protect non-key employees.

The correct answer fits because it identifies an officer or owner who meets those thresholds as the key employee, and explains that their presence determines top-heavy status and the related requirements. This matters because top-heavy plans must provide minimum benefits or contributions to non-key employees and may adjust vesting rules, ensuring that non-key workers aren’t left with disproportionately weaker benefits.

The other options don’t align with how top-heavy status is determined. A non-union employee with the longest tenure is about vesting or service, not about top-heavy designation. A part-time employee doesn’t set top-heavy status, and a retiree is connected to required minimum distributions, not to whether the plan is top-heavy.