QKA 2 Unit 2 HCEs Flashcards
An HCE has to pass 1 of 2 tests to be considered an HCE. What are the tests?
5% Ownership Test, Compensation Test
The 5% ownership test states that at any point during the plan year or the prior plan year, where the employee owns or is________ more than 5% of the company, they are an HCE.
Attributed
Attribution goes up how many relationships? Attribution goes down how many relationships?
Up 2- from Grandchild to Grandparent
From parent to child
Spouse to spouse
What is the look back year?
The 12 months period Prior to the current year.
If the calendar year election has been made regarding the look back year, then when does the measurement period start?
If the calendar year is elected for the look back year, then the measurement. Starts 1/1 of the prior calendar year, rather than the beginning of the plan year.
Under what internal revenue code is attribution of a grandchild ownership attributed to a grandparent?
IRC 318
What is double attribution? And is it permitted?
It’s not permitted, but it would means that attribution is credited a second time from one person to the next.
What is the top paid group election?
It’s an election available that limits the number of HCE’s in a company to the top 20% of paid employees who were above the comp limit for the year.
What are the four steps for determining the top paid group?
1) find the total number of employees
2) determine which employees can be excluded
3) multiply the remaining group by 20%
4) take the total number of employees that are HCEs by compensation and order them from greatest to least and apply to 20% number to that group.
How do you implement the top paid group election? When is it due by?
It must be listed in the plan document and elected by the last day of the plan being tested
What are nonresident aliens
Employees who are non-resident aliens, and who receive no earned income from US sources
A spouse is generally attributed ownership, unless all the conditions in what code are satisfied?
1563(e)(5)
A parent is always attributed ownership of a minor child, and is attributed to ownership of an adult child, who is 21 years or older only if:
The parent owns directly or by other attribution more than 50% of the company.
Are siblings ever attributed ownership from other siblings?
No, they are not
When is a grandparent attributed ownership of a grandchild?
Only if the grandparent owns directly or by other attribution, more than 50% of the company
Is ownership in related organizations aggregated to determine if an employee satisfies the 5% ownership test?
It does not
Is there attribution of stock between spouses if there is a legal separation under decree of divorce or separate maintenance?
There is not
Is a legally adopted child treated as the individuals child for attribution purposes?
Yes they are
Under IRC 318 a grandchild ownership interest is attributed to the grandparent. However, a grandparents ownership interested is what to the grandchild?
It’s not attributed
Question is it considered double attribution if for example, an owner and their spouse have three children. Each child is attributed 100% ownership of the company?
That is not double attribution, that is correct attribution
If the spouse of an owner is attributed ownership from their spouse, can that ownership also be attributed to a child?
No that would be double attribution
If the child of a greater than 5% owner is attributed ownership by that virtue, does the spouse of the child receive attribution?
No that would be double attribution
Is a plan allowed to use top paid group election for 401(k) deferral’s (ADP Test) but not for match (ACP Test)?
No top paid group election if used must be used consistently for ADP and ACP test
The following employees are generally not counted or are excluded when calculating the Top Group: (4 answers)
1) EEs who have not completed 6 months by the end of the year
2) EEs who work less than 171/2 hrs per week
3) EEs who work less than 6 months per year
4) EEs younger than 21
