HCE Status Determination in First Plan Year

[Guest Anjele Bonie]

How is HCE status determined under IRC Section 414(q) for the first year of a calendar year 401(k) plan and no employees are 5% owners when there is no "look back" year?

[Richard Anderson]

For a new plan there is still a look back period for HCE determination. If the employee had over $80,000 comp from the employer that maintains the plan in the prior 12 month period, he or she is an HCE in the first year of the plan. If the employer did not exist during the look back period (ex., new corporation formed) then the only HCEs for the first year would 5% owners. If the employer was formed at the same time the the plan was formed, then no employee has comp in the look back period; if there are no 5% owners, then there will be no HCEs in the first year of the plan.

[Guest michaelv]

I agree with RichardAnderson