Avoid top-heavy insurance rules — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Avoid top-heavy insurance rules

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Q: One of my business associates says top-heavy requirements exist for employee group insurance plans as well as 401(k) plans. Is that true? J.A., Monterey, Calif.

A: Yes. The first $50,000 of employer-paid group term insurance coverage is tax-free to employees as long as the plan is not discriminatory. That requirement is satisfied if 70 percent of all employees are eligible and 85 percent of the participants are not key employees. For 2005, key employees include officers earning more than $135,000, more than 5 percent owners and more than 1 percent owners earning above $150,000. Tip: The top-heavy rules for retirement plans are triggered if more than 60 percent of benefits go to key employees.

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