HCE determination

[FJR]

401(k) is a 3/31 Plan Year end. In determining the HCE's for the new Plan Year (4/1), is it the look back year definition that makes the determination. So if look back year is the Plan Year, then any Participant who earned over $90K as of 3/31 is an HCE. If Look Back is Calander year then anyone who had comp of $90K or more as of 12/31. In addition to owners etc.

Thanks.

[Jed Macy]

The definition of an HCE was statutorily revised effective for plan years beginning after 1996. See IRC §414(q)(1) and in particular IRS Notice 97-45's Section V2(b) which is reproduced below:

(b) A calendar year data election made by an employer does not apply in

determining whether the employer's employees are HCEs under section

414(q)(1)(A) on account of being 5-percent owners. Accordingly, if an

employee is a 5-percent owner in either the look-back year or the

determination year, then the employee is an HCE, without regard to whether

the employee's employer makes a calendar year data election.

[Tom Poje]

If your plan year begins 4/1/2004, then the lookback year (if a calendar year election was made) would be calendar year 2004.

I hadn't thought about it before (I guess it only makes sense), but I see that there is no such thing as a calendar year election for a 5% owner - that is always the preceeding 12 months (as well as the current plan year)