Who qualifies as key employees in a pension plan?

Key employees in a pension plan are defined based on specific ownership and compensation criteria outlined by the Internal Revenue Service (IRS). The key categories typically include individuals who are 5% owners of the business or those who earn a high annual compensation.

The correct answer identifies individuals who are 5% owners as well as employees earning more than $150,000. This criterion ensures that key employees, who have substantial influence over the company due to their ownership stake or significant financial compensation, are appropriately recognized in discussions about pension plan structure and benefits.

This classification is crucial because certain regulations and testing requirements (like the highly compensated employee tests and top-heavy plan rules) apply specifically to key employees, impacting the plan's compliance and benefits distribution. Understanding this categorization is essential for both plan administrators and employees to navigate the complexities associated with retirement plans.