QKA 2 Unit 2 HCEs

Question 1

An HCE has to pass 1 of 2 tests to be considered an HCE. What are the tests?

Answer 1

5% Ownership Test, Compensation Test

Question 2

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.

Answer 2

Attributed

Question 3

Attribution goes up how many relationships? Attribution goes down how many relationships?

Answer 3

Up 2- from Grandchild to Grandparent

From parent to child

Spouse to spouse

Question 4

What is the look back year?

Answer 4

The 12 months period Prior to the current year.

Question 5

If the calendar year election has been made regarding the look back year, then when does the measurement period start?

Answer 5

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.

Question 6

Under what internal revenue code is attribution of a grandchild ownership attributed to a grandparent?

Answer 6

IRC 318

Question 7

What is double attribution? And is it permitted?

Answer 7

It’s not permitted, but it would means that attribution is credited a second time from one person to the next.

Question 8

What is the top paid group election?

Answer 8

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.

Question 9

What are the four steps for determining the top paid group?

Answer 9

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.

Question 10

How do you implement the top paid group election? When is it due by?

Answer 10

It must be listed in the plan document and elected by the last day of the plan being tested

Question 11

What are nonresident aliens

Answer 11

Employees who are non-resident aliens, and who receive no earned income from US sources

Question 12

A spouse is generally attributed ownership, unless all the conditions in what code are satisfied?

Answer 12

1563(e)(5)

Question 13

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:

Answer 13

The parent owns directly or by other attribution more than 50% of the company.

Question 14

Are siblings ever attributed ownership from other siblings?

Answer 14

No, they are not

Question 15

When is a grandparent attributed ownership of a grandchild?

Answer 15

Only if the grandparent owns directly or by other attribution, more than 50% of the company

Question 16

Is ownership in related organizations aggregated to determine if an employee satisfies the 5% ownership test?

Answer 16

It does not

Question 17

Is there attribution of stock between spouses if there is a legal separation under decree of divorce or separate maintenance?

Answer 17

There is not

Question 18

Is a legally adopted child treated as the individuals child for attribution purposes?

Answer 18

Yes they are

Question 19

Under IRC 318 a grandchild ownership interest is attributed to the grandparent. However, a grandparents ownership interested is what to the grandchild?

Answer 19

It’s not attributed

Question 20

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?

Answer 20

That is not double attribution, that is correct attribution

Question 21

If the spouse of an owner is attributed ownership from their spouse, can that ownership also be attributed to a child?

Answer 21

No that would be double attribution

Question 22

If the child of a greater than 5% owner is attributed ownership by that virtue, does the spouse of the child receive attribution?

Answer 22

No that would be double attribution

Question 23

Is a plan allowed to use top paid group election for 401(k) deferral’s (ADP Test) but not for match (ACP Test)?

Answer 23

No top paid group election if used must be used consistently for ADP and ACP test