Determination of HCE vs. NHCE Category

[401 Chaos]

Is there anything in EPCRS that requires new hires brought in mid-year who will clearly be HCEs based on their annualized salary going forward to be treated as an HCE with respect to plan corrections during their first year even though they were classified as an NHCE for that first partial year for ADP testing purposes?

[david rigby]

5% owner?

What is meant by "... with respect to plan corrections..."?

[401 Chaos]

Individual at issue here is not a 5% owner. Would just be HCE based on salary but for the fact they came on board late in their first year (the look back year).

In this case, error involves exclusion of the individual from participation during the look back year and a portion of the next year where they were considered an HCE.

Basically, question is do you just look to the individual's classification for ADP test purposes or is there anything in EPCRS that would cause you to look at the individual's annualized salary or current classification when trying to determine their status in a prior year. There seems to be a difference of opinion among the advisors but I have seen nothing in EPCRS that suggests you do anything other than use ADP test classification.

[My 2 cents]

5% owner?

What is meant by "... with respect to plan corrections..."?

I may be wrong on this, but if someone is being paid $15,000 per month but only earned $90,000 in the lookback year, then they are a non-HCE and they have to be treated as such.

[Tom Poje]

nothing in EPCRS like that. In fact, in fact, as 2 cents point out, the regs are clear you look at the prior year to determine if someone is an HCE. there is no such thing as 'annualizing' comp to determine HCE status.