For the 2020 plan year, an employee who earns more than $125,000 in 2019 is an HCE. For the 2021 plan year, an employee who earns more than $130,000 in 2020 is an HCE.
How is HCE calculated?
HCE status based on compensation (not on ownership) is determined using compensation earned during the preceding year or 12-month period, referred to as the “look-back year.” If the year for which HCE status is being determined is not a calendar year, the sponsor may make a calendar year election so that HCE status is …
Which is an example of a HCE in 2017?
John is an HCE in the 2017 plan year because his compensation exceeded $120,000 in 2016, the lookback year. Example 6: Corporation X was incorporated on July 1, 2016. There is no predecessor employer. Corporation X establishes a retirement plan effective as of January 1, 2017. Corporation X does not make the top-paid group election.
When does an employee become a HCE owner?
An employee is an HCE if he or she is an employee during the short plan year and is a 5% owner at any time during the plan year (determination year) or the 12-month period immediately preceding the plan year (lookback year). Example 3: A retirement plan is established effective October 1, 2017.
When did Jack become a HCE in 2017?
Jack is an HCE in the 2017 plan year because his compensation exceeded $120,000 in 2016, the lookback year. Example 7: Same facts as Example 6, except Jack’s compensation from Corporation X during the 6-month period during which Corporation X was in business was $60,000.
When does the compensation test for HCEs end?
The plan sponsor does not make the top-paid group election. For the short plan year that begins on October 1, 2017, and ends on December 31, 2017, the HCEs under the compensation test are the employees whose compensation exceeded $120,000 from Corporation X during the lookback year – October 1, 2016, to September 30, 2017.
