HCE Determination when company is new?

[John A]

First date of new company existence is 7/1/00.

Effective date of 401(k) plan is 1/1/02.

To determine HCEs for calendar year 2002 plan year, would the dollar amount be prorated since the employees only had the possibility of 6 months of compensation, or would the determination be made using the full dollar limit?

[Richard Anderson]

In your example, for determining HCEs for calendar year 2002, you would look at compensation from 1/1/01 through 12/31/01. No pro-rating of compensation is used for determination of HCEs, just look at prior 12 months compensation.