HCE Determination in short plan year

[Guest MPITTS]

I have a client that was fromed on June 1, 1997. For the 1998 plan year we are looking back to 1997 for HCE determination. Do we need to prorate the comp. for 1997 since the company was formed in June or do we look at the actual comp. for our HCE determination.

Any help would be greatly appreciated.

[John A]

The look-back year is never less than a twelve month period, per 1.414(q)-1T (a)(3). However, I'm not sure that answers the question.

[Richard Anderson]

You do not pro-rate. If the employer existed for only a part of the look back 12 months, only those employees that earned more than 80,000 from the employer during that period will be HCEs based on compensation.

[John A]

Richard, I'm sure you're correct, but what are you basing your opinion on (written guidance - a cite, informal guidance from a meeting, common sense, etc.)?