HCE determination and comp limits for 2009

[buckaroo]

I just received the BenefitsLink Retirement Plans Newsletter. One of the articles ("Retirement Plans Work Differently for Highly Compensated Employees ") states that 'The regulations define an HCE by compensation. The limit is adjusted for inflation each year. If you earned $105,000 or more in 2007, you would be an HCE for 2008, and if you earned $110,000 or more in 2008, you will be an HCE for 2009.'

I think that the above is incorrect. I believe that if you earned $100,000 or more in 2007, you would be an HCE for 2008, and if you earned $105,000 or more in 2008, you will be an HCE for 2009.

Does anyone disagree?

(I have always found this issue to be troublesome as the way the figures are displayed on any chart are misleading.)

[BG5150]

I agree with you buckaroo. In a counter-intuitive approach, people who make more than the HCE limit for a particular year will be considered an HCE for the NEXT year.

The example is a bit dated, be this is from ERISA Outline Book:

2.a.1)Example - calendar year plan. A plan has a plan year which ends December 31. For the plan year starting January 1, 2002, the plan must look at compensation for 2001 to see who satisfies the compensation test. An employee's 2001 compensation must exceed $85,000 to satisfy that test (the dollar amount in effect for 2001). However, for the plan year which starts January 1, 2003, a $90,000 test applies because compensation for 2002 is used.

Of particular interest here is the last sentence. To determine a HCE for a particular year, you look to the participant's compensation vs the HCE limit for the PRIOR year.

[Guest Sieve]

I agree with you both--about the result and the confusion.

About the only way to make sense, and keep your sanity, with the HCE $ limit for a particular year is to realize that the limit is used when that year is the look-back year. So the $$ limit listed for 2007 is the amount used when 2007 is the look-back year (i.e., for determining HCE in 2008), and the $ limit listed for 2008 is the amount used when 2008 is the look-back year (i.e., for determining HCE for 2009).

[mbozek]

I just received the BenefitsLink Retirement Plans Newsletter. One of the articles ("Retirement Plans Work Differently for Highly Compensated Employees ") states that 'The regulations define an HCE by compensation. The limit is adjusted for inflation each year. If you earned $105,000 or more in 2007, you would be an HCE for 2008, and if you earned $110,000 or more in 2008, you will be an HCE for 2009.'

I think that the above is incorrect. I believe that if you earned $100,000 or more in 2007, you would be an HCE for 2008, and if you earned $105,000 or more in 2008, you will be an HCE for 2009.

Does anyone disagree?

(I have always found this issue to be troublesome as the way the figures are displayed on any chart are misleading.)

From the 2008 IRS Pub 560 P 5 column 1

"An HCE is an individual who for the preceeding year received compensation of more than $100,000 (if the preceeding year is 2007, $105,000 if the preceeding year is 2008 and $110,000 if the preceeding year is 2009)...

[Tom Poje]

and note the difference

if you received 'more than'

not 'if you received $x or more'

[buckaroo]

Thanks you all. It great to get confirmation that my thought was correct. The information provided is great and will help me not second guess myself in the future.