Course 2 Highly Compensated Employees

Question 1

How is ownership attributed?

Answer 1

Ownership is attributed from spouse to spouse, parent to child, child to parent, and child to grandparent.

Question 2

What are the steps to determine HCE’s using the top-paid group election?

Answer 2

1. Find total employees in plan. 2. Determine which employees can be excluded. 3. Multiply remaining employees by 20%, round up. 4. Order HCE’s based on compensation test and use that top 20% as HCE’s.

Question 3

What is the ownership test?

Answer 3

At any time during the plan year or the prior plan year, the employee owns or is attributed to own MORE than 5% of the employer.

Question 4

What is the compensation test?

Answer 4

During the prior plan year, the employee’s compensation is greater than the amount prescribed by law ($150,000 in 2023).

Question 5

What is the lookback year?

Answer 5

The lookback year is the 12 months prior to the current plan year.

Question 6

What is a weird lookback year?

Answer 6

A weird lookback year can be elected for off calendar plan years, which would be the calendar year that begins in the plan year preceding the current year.

Example: If the plan year begins Oct 1, 2020, the calendar year elections would have the measuring period January 1, 2020 - December 31, 2020.

Question 7

Who can be excluded when calculating the top paid group for HCE?

Answer 7

Employees younger than 21, not completed 6 months of service, work less than 17.5 hours per week, work less than 6 months per year, or union employees if more than 90% of the employees are covered by a union that is subject to collective bargaining and do not participate in the plan.

Question 8

HCE’s (without top paid group)

Answer 8

Pass the ownership and compensation test.