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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75524  
Subject: Re: Any guesses? Date: 8/31/1998 12:07 AM
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In response to my question, TMFPixy replied:

That 3% mandatory contribution is probably one the firm must make because your plan is considered "top heavy". A plan becomes top heavy when more than 60% of the benefits go to key employees. When that happens, the firm must make that 3% mandatory contribution to all the other employees. That gets expensive, so that's almost certainly why your firm is changing the plan. By changing the plan, the firm can ensure it's no longer top heavy and the 3% mandatory contribution will disappear.

I continue:

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? Thanks. --Bob
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