Compensation definition -- for determining HCEs and ADP testing

[richard]

Adoption agreement of prototype document was checked off defining compensation as to W2 plus 401k deferrals plus Cafeteria plan deferrals. Plan year end is 9/30.

1. In determining the denominator in the ADP (and ACP) test, must we use W2 plus 401k deferrals plus Cafeteria plan deferrals? If we want to use simply W2, can we? Or, what, if anything can be done to allow W2 to be used in the denominator?

2. An employee had a W2 compensation slightly under $80,000 for the PYE 9/30/99. But, his W2 plus 401k deferrals plus Cafeteria plan deferrals were over $80,000. Is he an HCE for PYE 9/30/00? Can anything be done at this time to avoid him from being an HCE for PYE 9/30/00?

Thanks

[Guest]

regardless of what the plan document says, a person may NOT defer himself out of being an HCE. that is the best way of saying it.

the definition of HCE has always been 415 comp, as long as I remember. and before SBJPA, you increased 415 comp by deferrals, so for all practical purposes, HCE comp has always been 'gross' rather than 'net'

so your ee is an HCE, unless your document defines HCE based on top paid group, and he was not in the top paid group.