Top Paid Group Determination

[Guest bw101]

Hi~

I'm looking for a simple (?) formula to determine HCE's. We've made the TPG election, since more than 20% of our employees would be considered HCE's if we didn't. Just when I think I understand the rules, I come across something that makes me question it.

Here goes:

I understand that step 1 is to list and count all employees that were employed any time during the LBY (2008). Let's say that number is 34. There were 5 employees in 2008 that had completed less than 6 months of service by the end of 2008.

My first question:

Is the number of employees that will be considered HCE's in 2009:

20% of 34 (34 x .2 = 6.8 = 7)

--- Or ---

20% of 29 (34 - 5 = 29 x .2 = 5.8 = 6)

THEN - we rank the employees by compensation in the LBY, and only the top ___ (6 or 7) employees are identified as HCE's for 2009, right?

Questions:

1) Would those employees identified as HCE in the test above, be an HCE in 2009 regardless of their 2009 income? (since compensation fluctuates, it is quite likely that others would have higher compensation)

2) What happens if one of those employees identified as HCE terminated in 2009? Does someone else take his place?

3) What if a 5% owner is also the highest paid employee? Would he be part of the ___ (6 or 7)? Or in addition to? Note that he was one of the 34.

I may have more questions, depending on the answers.

Thanks very much!

[BG5150]

1. Yes. It's just like the "normal" HCE test.

2. No.

3. The TPG is only for the compensation half of the HCE test. I do this test first, without regard to ownership. When I have that population, I add in any 5% owners who are outside that group.

[Mike Preston]

Your first question wasn't answered. The answer is: what does the document say? There are more options in the determination of HCE's than you have mentioned. Search the regulations for 17 and 1/2 hours, for example.

It is not always possible to use an easy way to determine HCE's.

[Below Ground]

To muddy the waters, what if you are doing the test for 2009 and a person had > 5% in 2007 but 0% in 2008 (lookback year) and 2009?

Oh, I say 6, since data used and analysis is for the "determination period" which is 2008.

[Guest bw101]

BG5150 - A follow up to your answer to #3...assume the number of HCE's is 6, and the 5% owner also had the most income in the LBY. He is one of the 6, not in addition to the 6, right? In other words, a 5% owner is only in addition to the 6 HCE's if he isn't in the top 6 for LBY comp. Is that correct?

Mike - Sorry, I didn't mention any of the other options in my original post because none of them applied. Based on that, what is your thought about that question? Would the exclusions apply:

a) As part of the 20% calculation? (i.e., 34 - 5 = 29 x .2 = 6 HCE's)

b) As part of the HCE assignment? (i.e., 34 x .2 = 7 HCE's, then if any of the 5 are among the top 7 HCE's, they are excluded)...

If this is the correct answer, and 1 of the 5 were excludable, then would it be correct that there would only 6 HCE's, not 7?

Thanks very much...the murky waters are clearing!

[Mike Preston]

To what you addressed to BG: correct.

Since a is correct and b doesn't apply, your question is moot.

[Guest bw101]

Thank you!

[XTitan]

I always thought that the easy definition of top paid group meant anyone who had a higher salary than me.

[Gadgetfreak]

1. Yes. It's just like the "normal" HCE test.

2. No.

3. The TPG is only for the compensation half of the HCE test. I do this test first, without regard to ownership. When I have that population, I add in any 5% owners who are outside that group.

I found this thread when searching for "top-paid". BG5150 (or anyone else for that matter), can you please reference where you believe your answer to #2 is addressed? If someone who is in the top-paid group in the LBY terminated before the end of the LBY and is not employed in the current year, I would love some official documentation to show that I can simply reduce my current year HCEs (based on the top-paid election) by 1.

I can see a case being made for either side but I can't find anything in any of my ASPPA, EBIA or EOB documentation. Thanks.

[PensionPro]

From EOB:

3.c.3)Suppose some of the lookback year's top paid group have terminated employment. Suppose that only 29 of the 60 shareholders who are employees in the current plan year were also part of the 32 most highly paid employees for the lookback year, because 3 of the top paid group members for the lookback year had left Law Firm C by the end of such year. In that case, only the 29 employees for the current plan year who were also included in the top paid group for the lookback year are HCEs for the current plan year. The other 50 employees (31 shareholders and 19 non-shareholders) are NHCs for the current plan year because they were not part of the top paid group for the lookback year, even though they had compensation above the compensation requirement in effect for such lookback year. As this example illustrates, we do not replace the 3 members of the lookback year’s top paid group who terminated by the end of that year with other lesser paid employees in order to treat 32 employees for the current plan year as HCEs.