What does the 10 percent cap refer to in the context of key employees?

The 10 percent cap specifically relates to the classification of key employees within a plan. It defines a limitation on how many individuals can be classified as key employees based on their ownership stake in the company. In most cases, to be considered a key employee, a person must own more than a specified percentage of the company; thus, the cap ensures that not too many employees are designated as key, keeping the plan compliant with regulations meant to protect the overall interests of plan participants and maintain fair distribution of benefits.

In this context, the percentage refers directly to the maximum threshold for the number of owners, typically defined by ownership interest, who can be classified as key employees under the plan. This is vital for compliance and helps maintain a balance in plan design and operation, safeguarding it against discriminatory practices.