Top Paid Group problem

[Richard Anderson]

Plan elects top paid group HCE definition.

20% equals exactly 8 HCEs. So, rounding up or down is not an option.

Employees 8 and 9 have the exact same compensation ($125,000).

So how do I choose between employee 8 or 9 as to which is HCE and

which is NHCE? Would it be possible to have both employee 8 and 9 in

the HCE group, even though the top paid group is only 8 employees?

[Tom Poje]

well 1.414(q)-1T Q-3

2 (ii)(b) says (the last sentence)

the employer may adopt any rounding or tie-breaking rules it desires, as long as such rules are reasonable, nondiscriminatory, and uniformly and consistently applied.

you can't have both as far as I can tell.

[Belgarath]

Perhaps choose based upon length of service with employer, for example?

[Kevin C]

How many people are excluded due to age and service when determining how many are in the top 20%? Under 1.414(q)-1 Q&A 9 (b)(2), the employer can elect to use lesser age and service conditions to determine the size of the top-paid group. Making an election may result in 9 being in the top-paid group.

(2) Alternative exclusion provisions—(i) Age and service exclusion election. An employer may elect, on a consistent and uniform basis, to modify the permissible exclusions set forth in paragraph (b)(1)(i)(A), (B), ©, and (D) of this A-9 by substituting any shorter period of service or lower age than that specified in such paragraph. These exclusions may be modified to substitute a zero service or age requirement.

[Richard Anderson]

I forgot to add some information.

Employee 8 has more than 5% ownership and has 3-month more service than employee 9.

Employee 9 has 4.5% ownership.

If I can somehow get employee 9 as the 8th one in the top paid group, then employee 8 will

be HCE because of ownership.

Also, all employees are counted for the top paid group count. Employer has not hired any new employees

in the last two years. I wish I could get 20% to equal 8.1 employees, but no luck there. I'm at exactly 8.

[BG5150]

If I can somehow get employee 9 as the 8th one in the top paid group, then employee 8 will

be HCE because of ownership.

They can use any standard they want to break ties. Service. Alphabetical order. Height. (ok. maybe height isn't reasonable) Consistency is the key.

Make the deciding factor, "the employee who has the least ownership in the company" as the first tie-breaker.

[chc93]

Sounds like you want 9 hce's? I was under the impression that for ties, all employees with the same compensation are in the top-paid group... regardless of whether you end up with more than 20%. So, in your case, employees 8 and 9 are both the "eight" person.