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Bob, you said:

I assume that "key employees" is (at least roughly) synonymous with "highly compensated employees," as that term is used in the Code. This explanation makes sense to me under two conditions. First, I assume the partnership is increasing its own benefits. Second, I must also assume that benefits going to partners (who are owners, rather than employees, of the firm) are included within the 60% cutoff. If both assumptions are correct, and the former plan was "almost" top heavy, then the only way for the partnership to increase its own benefits is to decrease benefits to other key employees (such as my peer group!). Is my second assumption correct?

The term "key employees" generally applies to owners/officers, but that is usually roughly comparable to "highly compensated." As to your second assumption, in the sense a revision will eliminate a mandatory 3% contribution to all other employees (thus causing less of an out-of-pocket expense), then the benefits to the partnership may increase. Due to other discrimination testing that may severely limit contributions of highly compensated employees, the partners may not benefit to the degree you think they will. It all depends on the participation rate of the non-highly compensated employees.


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