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1/1 plan year, plan sponsor determining HCE status for the 2012 testing year (1/1/2012 to 12/31/2012), and they use the Top paid 20% definition. To determine the 20%, they must look at their employees in 2011 - and rank them by compensation earned in 2011. But I have a question on the service exclusion. §1.414(q)-1T Q-9 says that you can exclude "employees who have not completed 6 months of service by the end of such year". It goes on to say that service in the immediately preceding year must be added to service in the current year. Is "such year" defined as the testing year or the lookback year? If an employee is hired on 8/1/2011 and terminates on 5/31/2012, could they be excluded when determining the 20% for the 2012 testing year? If "such year" is defined as the lookback year, then yes - they can be excluded. They do not have 6 months of service by the end of 2011. "Such year" is defined as the lookback year - which is 2011. If "such year" is defined as the testing year, then no - they cannot be excluded. They have in excess of 6 months of service by the end of 2012 - because you have to add in their service from the preceding year (2011). "Such year" is defined as the testing year - which is 2012. I know there is an example in the regulations - but it's not helping me at all. And by the way - the Coverage & Nondiscrimination Answer Book defines this exclusion by saying: The following employees may be excluded from a determination of the top-paid group: Employees who have not attained age 21 by the end of the plan year Employees who have not completed six months of service at the end of the plan year When I think of "plan year", I think of the plan year being tested (2012). So that would lead me to believe the second bullet above in the example is correct. It would be nice if the regs & answer book used "determination year", "testing year", or "lookback year" - instead of "such year" and "plan year". Any opinions?