Off calendar year limits

[CJS07]

Just got back from vacation and apparently my brain is still on vacation. . .

Plan year end is 5/31/06 - what would the limit be to determine HCEs for the 06/01/05 - 05/31/06 plan year? 90k or 95k?

THANKS!

[sdix401k]

HCE Determination

The determination of who is an HCE is somewhat complicated because of the requirement that the compensation limit for HCEs is to be determined based upon compensation earned in the look-back year. Let’s look at a calendar year plan example first. For a calendar year plan, the ADP test for the 2006 plan year is run using the look-back year HCE compensation limit. In 2005 the HCE compensation amount was $95,000. Thus, to determine who is an HCE for the 2006 plan year, we need to “look-back” to the compensation in 2005 and use the 2005 limit of $95,000 (not the 2006 limit of $100,000).

An off-calendar year plan, such as one with a July 1, 2005 to June 30, 2006 plan year will determine who is an HCE based on the look-back limit in effect on the first day of the look-back plan year. Thus, the 2004 limit of $90,000 will apply for determining HCEs for the plan year that runs from July 1, 2005 to June 30, 2006. The $90,000 limit is applied to the compensation earned in the period from July 1, 2004 to June 30, 2005.

[Tom Poje]

if the document says 'use calendar year election' then you would use the comp from 1/1/05 - 12/31/05 and 95,000 as the limit.