Compensation used to Determine Top Paid Group

[MarZDoates]

Does the 401(a)(17) compensation limit apply when determining the top paid group of employees (for HCE definition)? Thanks.

[buckaroo]

I think you are asking if the comps should be limited to 401(a)(17) when determing the TPG. The answer is no. You rank them based on comp without regard to 401(a)(17) to determine who is in the TPG.

[MarZDoates]

Yes, that was my question. Thank you!

[MWeddell]

That makes logical sense, although I can't squeeze buckaroo's answer out of the authorities.

Code Section 414(q)(4) uses 415 compensation. Treas. Reg. 1.415©-2(f) limits 415 compensation to the 401(a)(17) compensation cap. Treas. Reg. 1.414(q)-1T, Q&A-9 contains the more detailed rules for applying the top-paid 20% group election, but it doesn't address the issue, which is not a surprise since that regulation was issued before 415 compensation was limited by the compensation cap.

I would conclude that you have a tie for who has the highest 414(q) compensation and everyone with prior year 414(q) compensation at the 401(a)(17) compensation cap would have to highly compensated. Keep collecting others' opinions, however.