414 - HCE

Question 1

Definition of HCE

Answer 1

1. 5% owner in at any time during current year or prior year
2. OR Had compensation above the HCE limit in prior year
3. OR if the employer elects to use top-paid group, then instead of (2), it is just the top 20% of employees ranked by salary
   
   1. Note that if fractional, you can round up or down.

Less Tested: Officer

Question 2

If a plan is a non-calander year, i.e. plan runs 7/1/2019 to 6/30/2020, then do you use the HCE limit for 2019 or 2020. When is the pay as of?

Answer 2

HCE Limit 2018 (Always the year in which the plan comp begins)

6/30/2019 (i.e. end of previous year)

Question 3

If a plan runs 1/1/2019 to 12/31/2019, then do you use the HCE limit for 2019 or 2020. When is the pay as of?

Answer 3

You would use the pay from the prior year, so you use the limit from the prior year as well. I.e. 2018 pay, 2018 limit.

Question 4

How is the top-paid group determined?

Answer 4

1. Exclude the following employees (all calcs done w.r.t. the end of the year)
   
   1. < 6 months of service
   2. < 21 years old
   3. Non-resident Aliens
   4. When they work, they work <17.5 hours a week more than half the time
      
      1. i.e. Employee 1 works 18h, 15h, 18h, then quits. The employee worked over 17.5 hours 66% of the time and isn’t exlcuded.
   5. Work <6Mo a year
   6. CBA Employees IFF 90% of employees are CBA and plan covers only non-CBA employees
2. Determine the X = number of employees.
3. Now, include ALL employees and determine the top X paid employees

Question 5

In determining exclusions for the 20% top paid group, can an employer use less restrictive age/service conditions?

Answer 5

Yep

Question 6

In determining an HCE, how are employees that performed no services treated?

Answer 6

Excluded, can’t be an HCE.

Question 7

Definition of a Former HCE

Answer 7

1. Was an HCE at 55 or older.
2. Was an HCE when they left company.

Question 8

When considering stock for the 5% ownership rule, what family members must be considered?

Answer 8

2 down, 1 up, 1 left

Children, Grandchildren, Parents, Spouse

Question 9

T/F If Smith owns 5% of stock in a company, he is a 5% owner.

Answer 9

False - must own more than 5% to be a 5% owner

Question 10

T/F Employer A elects to use top paid group to determine the HCEs. Employee B is not in high paid group, but is a 5% owner. Employee B is not an HCE.

Answer 10

FALSE

Question 11

T/F Employer A elects to use top paid group to determine the HCEs for 2020. Employee B is in high paid group based on 2019 salary, but does not work any hours in 2020. Employee B is not an HCE.

Answer 11

True - must work in the year you are determining HCEs

Question 12

If we are determining 2008 HCEs and a participant terminates during 2007, are they included in top paid group, are than an HCE?

Answer 12

They would be included for purposes of the top paid group, but would not be an HCE because they didn’t work during the current plan year.