Top Paid Election and ADP Test

[cpc0506]

Client has 11 employees and utilizes top paid group election.

Top paid election would be 2 (rounding down) which is what the Relius system is showing.

There are three HCEs. One is a greater than 5% owner and the other two are HCEs based on compensation.

Plan uses prior year testing.

My question: The Relius system is showing all three in the top of the ADP Test even though there is a top paid election in plan. Can anyone tell me why this is happening?

[Kevin C]

Did the two non-owner HCE's make more than the owner last year?

[BG5150]

Kathy:

Two independent parts to HCE determination here.

1) Compensation test. In the top 20% of comp? Then an HCE. If owner didn't make as much as the other two, he (or she) is not in this group.

2) Owner test. Own more than 5% directly or by attribution, and you're in this group.

If you are in either one of these groups, you're an HCE.

Remember, the TPG only modifies group # 1 and has no bearing on group #2.

[cpc0506]

The greater than 5% owner made more money than the other two HCEs.

[Kevin C]

The size of the top 20% group and who is in it are determined by the census for the look-back year. Is the 11 employees information in post 1 from 2012 or 2011?

[chc93]

Client has 11 employees and utilizes top paid group election.

Top paid election would be 2 (rounding down) which is what the Relius system is showing.

There are three HCEs. One is a greater than 5% owner and the other two are HCEs based on compensation.

Plan uses prior year testing.

My question: The Relius system is showing all three in the top of the ADP Test even though there is a top paid election in plan. Can anyone tell me why this is happening?

Interesting... I haven't found a reference, but I've always thought that the top 20% was always the next highest percent, and that's what I've been doing. So in your case, it would be 3 in the top paid group.

[BG5150]

You can round any way you want, as long as it's consistent.

[BG5150]

Kathy, run the HCE/Key EE report in Report Writer (or the one from the ADP test module). It'll tell you there why each person is being considered an HCE. Well, why the system is considering them HCEs at any rate.

[cpc0506]

Client has 11 employees and utilizes top paid group election.

Top paid election would be 2 (rounding down) which is what the Relius system is showing.

There are three HCEs. One is a greater than 5% owner and the other two are HCEs based on compensation.

Plan uses prior year testing.

My question: The Relius system is showing all three in the top of the ADP Test even though there is a top paid election in plan. Can anyone tell me why this is happening?

Interesting... I haven't found a reference, but I've always thought that the top 20% was always the next highest percent, and that's what I've been doing. So in your case, it would be 3 in the top paid group.

Sal Tripoli states in the EOB that you can round up or down, you just have to be consistent.

[cpc0506]

The size of the top 20% group and who is in it are determined by the census for the look-back year. Is the 11 employees information in post 1 from 2012 or 2011?

That is the HCE for 2011. There are no new owners in 2012 so I have the same three employees

[Tom Poje]

for top paid group, you can either round up or down.

for number of officers to determine key participants you always round up

minimum participation always round up

nonhighly employee concentration percentage always round down.

[cpc0506]

Now I learned that the two HCE's in my test are 2% owners (so they would be considered key under the 1% owner with comp greater than the limit rule). But the top paid group election still only looks at HCE's due to comp and 5% owners, right? It does not look at 1% owners?

[BG5150]

But the top paid group election still only looks at HCE's due to comp and 5% owners, right? It does not look at 1% owners?

No. It should ONLY look at comp.

In Relius there are two reports to help you out.

Go to the 2011 plan year and run the "Top 20% for next year" report in the ADP testing module. That will show you who it considered when making the determination.

Then got to 2012 and run either the "Highly compensated employees" report in the ADP testing module or the "HCE and Key Employee Detail" report in Report Writer (it's in the Miscellaneous tree). Either report will tell you WHY someone was considered an HCE (owner, comp, TPG, etc.)

If, after careful consideration, you think it's wrong, you can always manually code someone as an NCHE.