I apologize in advance if I am asking a question that has been answered before. Several hours of searching have failed to help me.
I work at a small startup and no one here knows anything about how any of this works, including myself. I started us on a 401k plan a couple of years ago and I'm being told that we are failing the ADP test, probably because we only have 6 people and 3 of them are HCEs.
My problem is that the percentages used by the plan to determine this don't make sense to me. I tried asking them about it, and got a very confusing answer from their support team, having something to do with who is considered eligible to be a NHCE. After a lot of searching, I finally figured out that they are using the "prior year plan" (I think--nothing else makes sense). But I still can't figure out who they are counting as an NHCE--does someone who worked for the company last year (2018) who left the company in 2019 count?
What if they joined mid-2018? Does it matter when?
What if they joined mid-2018 and left in mid-2019?
What if they joined in 2019--do they not count at all because of the prior year thing? Does it matter when in 2019 they joined?
What if they joined prior to 2018 and then left in 2018?
What if they joined prior to 2018 and then left in 2019?
Any way for me to understand this would be much appreciated. Does this vary by plan, so I have to ask their unhelpful support team again and can't get an answer here?
