No Retroactive Change in Key Employee Status (Posted July 8, 2004) Technical Tip 124: The following question and answer were from the IRS Q&A Session at the 2002 ASPPA Annual Conference: A provision of 416(i) says an employee who used to be a key employee, but is no longer a key employee, is a former key employee. His/her balance is excluded from the determination of top heavy status. For 2002, is an individual who is or was a top ten owner, but otherwise is not a key employee, a former key employee or a non-key employee? IRS Answer: Former key employee. ASPPA Analysis: The best analysis, I believe, is that he/she is a non-key employee because we have to look at the employee’s status as a key employee in prior years, as if the new law applied in those years. (Analogy is using new 401(a)(17) limits to compute 3-year average--even for pre-2002 years.) IRS Comment on ASPPA Analysis: We don't agree with your analysis. Key employee status in prior years DOES NOT CHANGE; once a key in a prior year, you are always a key in the prior year. If in current year you are not a key, then you are a FORMER employee. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.