HCE determination--anyone electing top paid group?

[Guest SJPrince]

I need to ascertain whether people's plans are electing to use the top paid group rule when determining HCEs.

Your help and experience with this is greatly appreciated!!

Samantha

[M R Bernardin]

We have some that do. We look at which employees would be moved from the HCE to the NHCE group, and then at what those employees have deferred in the past. If their deferral rates are high, treating them as NHCEs would be helpful. If their deferral rates are not high, keeping them as HCEs is usually best.

[Guest]

top heavy is a different issue, HCEs are different from key employees.

that being said, I don't think that was the issue you were addressing anyway.

simply selecting 5% owners and those making 80,000 is the easy (lazy?) way of determining hces. you simply know who is an hce w/o further calculation. thus it is very easy to limit that group to 8%.

if document says 'hces limited to 8%' then you may have problems if using top-paid group, since you don't really know who is an hce til after end of plan year and people are already deferring.

if document says 'limit 80,000 ees to 8%' then you may or may not be correct it would help the ADP test to use top paid group. suppose there is an HCE who does not defer. then you get a big fat 0 in the HCE portion of the test no matter.

its a tough call, I would hope that when the decision was made someone looked at a few years worth of data to determine whether its better to use top paid or not to use top paid group option.Still, you are correct in the fact it actually may help the test to use top paid group. You just never know for sure.

anyway, not a lot you can do about it. (start a ROTH IRA?) The max you can defer is 10,000 in a given year, at 8% of 80000 (6400) the maximum anyone is out in the plan is 3600. I know of other who have the same problem, except the deferrals are limited to less than 8%.

I'd be curious to know what is going to happen in the plan when the 80,000 is kicked up to 90,000. That could easily happen in a year or two.

(former resident of GR MI)

Ha! I should make enough money to have to worry about it!

[Guest TDugan]

The determination for top paid group is >$80,000 and/or top 20% plus 5% owners correct ? My employer is using only the $80,000 limit to determine HCE's and limits those over 80k to 8% -- what is the possible rationale for this -- it would seem if they are worried about being top-heavy removing those 80k guys with high deferrals would help in the ADP/ACP calculations -- what am I missing ? If they won't change are their other options for people in my boat ? (the plan won't change to "safe harbor" method)

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[Guest TDugan]

The determination for top paid group is >$80,000 and/or top 20% plus 5% owners correct ? My employer is using only the $80,000 limit to determine HCE's and limits those over 80k to 8% -- what is the possible rationale for this -- it would seem if they are worried about being top-heavy removing those 80k guys with high deferrals would help in the ADP/ACP calculations -- what am I missing ? If they won't change are their other options for people in my boat ? (the plan won't change to "safe harbor" method)

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[Guest TDugan]

Thanks Tom Poje -- you provided insight which I didn't have before --and GR is still a great town !