HCE using top paid group

[cdavis25]

This should be an easy one to answer. For a 2007 calendar Plan year, how do you determine the number of employees in the top paid group for determining the number of HCEs? Say there are 200 employees on 12/31/2006. There are 230 employees on 12/31/2007. Assume there are no exclusions, no owners, and everyone makes over $150,000. Do you take the 200 times 20% or 230 times 20%?

[Mike Preston]

Trick question, huh? Need more info. There are certain exclusions that apply to the determination of the multiplier. Some of them are optional. You need to go through the list (17.5 hours/week, 6 month employment, etc.) before you can cull your 230 down to a smaller number.

However, I suspect your real question is: are the HCE's determinable at the beginning of the year, or is it possible that somebody becomes an HCE during a year? Is that what you are really driving at?

[WDIK]

Vision not so good, Mike?

[Mike Preston]

Could be. I'm old. I'm cranky. If you are referring to the "no exclusions" language, I took that to mean that the PLAN has no exclusions and therefore one considers everybody. Nope. Not true. Even if you have immediate eligibility you can still have bodies that are employed on 12/31/2007 (such as 100% of them hired on or after 6/2/2007) who still do not count for the HCE determination.

Am I seeing things fuzzy, still?

[WDIK]

I'm sure your sight is much clearer than mine. I'm also a bit deficient in the humor category.

[cdavis25]

Mike,

By no exclusions, I meant the 6 months, 21, 17.5 hrs/wk, etc... do not apply in this example. My question is the count for the top paid group to determine the HCEs for the 2007 Plan year.

Is it 200 (number of employees on 12/31/06) x .20 = 40

-or-

Is it 230 (number of employees on 12/31/07) x .20 = 46

I believe you refer to the lookback year (2006) and use the 200 number to determine the count for the top paid group.

[Mike Preston]

You are, of course, correct. But there is still more that needs to be specified or else people will be led astray. Let's assume you are saying that there are no exclusions. You also need to specify that all 200 of your employees on 12/31/2006 were employed for the entire year. Otherwise, since you've already said you aren't applying any HCE exclusions, an individual hired 1/1/2006 and who left on 1/2/2006 would be included in the number that one multiplies by 20%. And since that person isn't employed on 12/31/2006, the one thing I can tell you is that, in that circumstance, the number you multiply by 20% is NOT 200!

In the real world, you can almost never look at the employee census on a snapshot date, count the people active, and multiply by 20%. Unless absolutely nobody was hired or terminated during the year, you have to look at the exclusions. To the extent that they are NOT applied, it ends up modifying your body count (200 in your example) faster than if they WERE applied.

I think I've probably beat this poor horse, so I'll go look for another one some place else!