DB plan and exclude HCE

[Lotrfan1]

I’m a 35 year old physician with his own practice. I’m about to hire a physician into my practice and pay them a salary of $400k. This physician would be my only employee. 

I want to start a DB and know I can exclude highly compensated employees. However, would that exclude me too since I make over $125k? Even though I own the corp 100%, I w-2 myself.

I want to start a DB but not include my employee for the duration of the DB. Thanks 

[Belgarath]

You aren't going to be able to exclude the employee. The minimum participation test under IRC 401(a)(26) would fail. 

First, see a local TPA/Actuary to go over your options.  They will be able to suggest what works best for your situation. Perhaps you could give this employee a minimal benefit. Or put in a 401(k) plan - you CAN exclude the HC employee from receiving any employer contributions in this.

[justanotheradmin]

This may be moot if your proposed plan has a long service requirement for eligibility, but likely your employee wouldn't be considered highly compensated until their second (or possibly third) year of employment because of how the HCE look-back rules work. 

I would also talk to someone about possible related employer group rules. I my experience it is unusual (though certainly not impossible) to have a 1 person physician practice (or two in your case) with absolutely no other related employers or employees. If there are other people you work with ( billing, medical staff etc) even if they are leased, temporary, or paid on 1099, please have someone well versed in control group / affiliated service group/ management groups etc review your particular circumstances to make sure there are other groups of people that have to be included in any retirement plan testing. You might not have to give them any benefits under the plan, but the actuary might need to include their data in the annual testing.