What is the maximum number of officers that may be considered key employees in a given year?

The maximum number of officers that may be considered key employees in a given year is determined by the IRS regulations concerning employee benefits. The correct answer states that 10% of employees can be classified as key employees. According to IRS guidelines, a key employee is someone who, in the current or preceding year, is one of the highest-paid employees, with a specific focus on officers, shareholders owning more than 5% of the company, or highly compensated employees in general.

Thus, when calculating the number of key employees, an organization can utilize up to 10% of its total employees. This provision enables companies to accurately reflect leadership roles and compensation structures within their benefit plans. This framework is crucial for ensuring compliance with nondiscrimination rules and for understanding the distribution of benefits among employees.

The alternative choices either impose arbitrary limits not supported by IRS guidance or specify amounts that do not align with the regulations governing key employee classifications. This understanding of how key employees are defined and counted is essential for effective 401(k) plan administration.