ADP Prior Year Testing - employee NHCE in 2015 but HCE in 2016

[waid10]

We are using the prior year testing method.  We have an employee that was a NHCE in 2015.  He became and owner in 2016, thus an HCE.  For purposes of the ADP test, are his deferrals included in both groups? i.e. his 2015 deferrals as part of the NHCE group and his 2016 deferrals as part of the HCE group?

Thanks.

[Lou S.]

The 2015 ADP is the ADP of NHCEs in 2015 so yes he is included in the NHCE ADP for 2015.

The 2016 ADP of the HCEs is all HCEs in 2016 so he is a part of that group too.

The 2016 ADP of HCEs is compared against the 2015 ADP of NHCEs.

This isn't all that uncommon when an employee crosses the pay threshold to become an HCE, marries an owner, or becomes an owner.