Family attribution apply in Top Paid Group election?

[kwalified]

Potential plan has 28 employees. Sole owner has daughter/son working. They are the only 3 HCE's. Fails ADP. When using Top Paid Election, the son/daughter are excluded correct, unless their income falls in Top 20%?

[Mike Preston]

This question is unintelligible. I'll flail around a bit, but since I don't understand what question you are asking, I may miss the mark entirely.

The son/daughter are HCE's per 414(q). They are 5% owners, so they are HCE's.

They count as part of the top 20% only if their compensation puts them there. Hence, if you have 5 other employees that make more than the threshold (plus the owner makes 6) then all of those 5 count as HCE's even though both your son and daughter do, too.

So, with the top 20% election you can end up with 8 HCE's out of 28.

[ETA Consulting LLC]

The son/daughter are HCE's per 414(q). They are 5% owners, so they are HCE's.

"Like" This is irrespective of any Top Paid group as it pertains to the ownership criteria for determining HCE status.

Good Luck!

[BG5150]

Taken from another angle, you have to remember there is a two-part test to determine an HCE which are independent of each other.

1. Compensation test: Have compensation greater than the applicable dollar limit in the appropriate year, and you're an HCE. --OR-- if using the top paid group, be in the top 20% group and you're an HCE.

2. Ownership test: Be a 5% owner, you're an HCE; be a 5% owner by attribution and you're an HCE.

Being in either group makes you an HCE.

[kwalified]

This question is unintelligible. I'll flail around a bit, but since I don't understand what question you are asking, I may miss the mark entirely.

The son/daughter are HCE's per 414(q). They are 5% owners, so they are HCE's.

They count as part of the top 20% only if their compensation puts them there. Hence, if you have 5 other employees that make more than the threshold (plus the owner makes 6) then all of those 5 count as HCE's even though both your son and daughter do, too.

So, with the top 20% election you can end up with 8 HCE's out of 28.

I apologize if I was unclear. The son/daughter do not make compensation to put them in the Top 20%. However, they are considered HCE's due to attribution for Top Paid Group purposes? So if you have 3 HCE's (owner/2 children), then 5 in Top Paid Group, you have 8 total in the Top Paid Group, correct?

[BG5150]

No. There are two separate groups. If you are in one, you are an HCE. Top 20% has nothing to do with ownership.

You list the employees, take out the excludables, forget about ownership(!), divide by five and draw a line. Everyone above the line and above the income threshold is an HCE for comp. For 28 eligible people, that would be MAXIMUM six (due to rounding). Ties are decided by the Employer and has to be consistent year to year. Again, ownership (or attributed ownership) plays no part in this test.

Then you do the ownership test. Anyone who wasn't an HCE due to the top paid group calculation and is a 5% owner (by direct or attributed ownership) are HCE's, too.

In your case, the owner and his kids are HCE's. Assuming the owner makes more than the HCE comp threshold, and the kids don't, you could have up to 5 more HCE's, depending on the earnings of the top six people FROM THE LOOK BACK YEAR.

(Well, you may be right in that there could be 8 HCE's--owner, two kids, 5 more participants who made more than the limit in the previous year).

And don't forget, that you can exclude some EMPLOYEES (not necessarily participants) from the top paid group count if: a) they are under 21, b) usually work less than 17.5 hours a week, c) usually work less than six months a year, d) those who work less than six months. (I think that's it, I always have to look it up) So you may have less than 28 people in the determination if there was anyone in any of those 5 categories.

[kwalified]

No. There are two separate groups. If you are in one, you are an HCE. Top 20% has nothing to do with ownership.

You list the employees, take out the excludables, forget about ownership(!), divide by five and draw a line. Everyone above the line and above the income threshold is an HCE for comp. For 28 eligible people, that would be MAXIMUM six (due to rounding). Ties are decided by the Employer and has to be consistent year to year. Again, ownership (or attributed ownership) plays no part in this test.

Then you do the ownership test. Anyone who wasn't an HCE due to the top paid group calculation and is a 5% owner (by direct or attributed ownership) are HCE's, too.

In your case, the owner and his kids are HCE's. Assuming the owner makes more than the HCE comp threshold, and the kids don't, you could have up to 5 more HCE's, depending on the earnings of the top six people FROM THE LOOK BACK YEAR.

(Well, you may be right in that there could be 8 HCE's--owner, two kids, 5 more participants who made more than the limit in the previous year).

And don't forget, that you can exclude some EMPLOYEES (not necessarily participants) from the top paid group count if: a) they are under 21, b) usually work less than 17.5 hours a week, c) usually work less than six months a year, d) those who work less than six months. (I think that's it, I always have to look it up) So you may have less than 28 people in the determination if there was anyone in any of those 5 categories.

The highest paid employee in the look back year was $107,000. The sole owner made $100,000. So the six Top Paid would make up the group?

[ETA Consulting LLC]

The highest paid employee in the look back year was $107,000. The sole owner made $100,000. So the six Top Paid would make up the group?

NO. You must "EXCEED THE COMPENSATION LIMIT ($110,000)" and "BE A MEMBER OF THE TOP PAID GROUP".

You still have to exceed the limit. In this case, no one exceeded the limit; so your only HCEs will be due to ownership.

Good Luck!

[BG5150]

The highest paid employee in the look back year was $107,000. The sole owner made $100,000. So the six Top Paid would make up the group?

What plan year are you talking about and we can figure it out.

(Also, do you have any TPG excludables? Even removing one, you would be down to five people (27/5 = 5.4, rounds to 5).