What earnings do I use?

[richard]

1. In determining the denominator of my ADP/ACP test, do I use:

W2 earnings,

W2 earnings plus 401k deferrals,

W2 earnings plus 401k deferrals plus Section 125 deferrals, or

other?

2. To determine whether or not an employee is an HCE, do I use:

W2 earnings,

W2 earnings plus 401k deferrals,

W2 earnings plus 401k deferrals plus Section 125 deferrals, or

other?

[Tom Poje]

good question!

sometimes the document will specifically state, however you are permitted to use 414(s) comp which means you could use gross or net comp. you have to be consistent.

in other words, all deferrals, including 125 deferrals must be included/excluded. if you use only count some, then you have to do

414(s) testing as well.

My experience is excluding comp only works if hce are over 160,000 and you have very few ees deferring zero. in other words, usually aint worth excluding.

you are permitted to use comp only while particpant. hence, an ee entering mid year only needs to include 1/2 yr comp.

again, being consistent, if using prior year data, the definition for 414(s) must be the same for the HCEs in the current year.

use gross comp for determining HCE. top paid group election may be used, but this definition must be included in the document once paln is restated for SBJPA.