my company has 7 employees - two of which are owners so i would consider them the key employees. that said, we have several other employees that make more than the minimum but i am not sure i would call them officers in such a small company - is that more subjective as to who is an officer?
also, if looking back i have to change my calc making more folks officers and fail the test (within 2 years) what happens? do i have to refile anything other than the 5500?
Hi - The best solution for a small company is to switch to a "Safe Harbor" plan. Under the Safe Harbor exception, the employer is required to make mandatory contributions (up to 3% of payroll) that are immediately vested. In exchange, there is no discrimination testing and no potential "kick-out" of contributions for highly-compensated owners and employees. The bottom line result to ownership and other highly compensated employees is that they can contribute the maximum salary deferral to the 401k.
Employers naturally object to the mandatory contributions but I always explain it as "The benefits to you as an owner far out weigh the costs of the mandatory contributions." When they understand that, most employers decide the Safe Harbor plan is the best option for maximizing their contributions without the cost, hassle and uncertainty of discrimination testing. Good luck!