Top Paid Group Election

[dmb]

Plan with Top Paid Group Election has 10 employees prior year so top paid group is 2. There are 3 owners (>5%) and 7 staff. The highest paid employee is one of the owners, lets say $300,000. The next two highest paid are non-owners and they earn the same amount, lets say $250,000. Are both non-owners considered HCEs?? Thanks.

[Tom Poje]

HCEs by comp you will have 2

owner and one other and you are allowed to use whatever tie breaker you want. flip a coin, etc.

then you add back all other owners as HCE as well.

[DMcGovern]

Plan with Top Paid Group Election has 10 employees prior year so top paid group is 2. There are 3 owners (>5%) and 7 staff. The highest paid employee is one of the owners, lets say $300,000. The next two highest paid are non-owners and they earn the same amount, lets say $250,000. Are both non-owners considered HCEs?? Thanks.

Top paid group election only ranks them by comp - ownership is not a factor. So, you would have the one HCE with the highest comp and the next non-owner that has the next highest comp. However, the top paid election is only a compensation test and does not affect who is considered an HCE under the 5% owner test. So, the >5% owners not included under the top paid election would still be considered HCEs under the ownership test. Total of 4 HCEs