Key employee
Key employee, in U.S. Internal Revenue Service terminology, is an employee classification used when determining if company-sponsored qualified retirement plans, including 401 defined benefit plans and 401s, are considered "top-heavy" or, in other words, weighted towards the company's more highly compensated individuals.
A key employee is defined by the IRS as an employee, either living or dead, who meets one of the following three criteria:
- An officer making over $175,000 in 2018 or $180,000 in 2019 ;
- A 5% owner of the business, or
- An employee owning more than 1% of the business and making over $150,000 for the plan year.
All other employees are referred to as non-key employees.
There are some similarities between key employees and so-called highly compensated employees, but the compensation salary threshold is lower for HCEs, at only $120,000 versus $150,000 for key employees.
