ADP Test - Determining HCE

So just a little background:

1. There's a total of 37 eligible participants
2. 4 are owners (including owners through family attribution)
3. 19 HCE based on compensation

I know you can limit the HCE to the Top 20%, and all owners are considered HCE.  So in this case, regardless of the compensation of the owners, would we use them and then the next 4 highest to create the 8?  Or do you use the highest 8, and then add any owners who are not included (so you would be over 8)?

Thanks in advance!

The second of those - all the owners AND all the top 8.  (Or 7, you can round either way on the 20% calculation as long as you're consistent in the way you do it.)

1 minute ago, Bri said:

The second of those - all the owners AND all the top 8.  (Or 7, you can round either way on the 20% calculation as long as you're consistent in the way you do it.)

Perfect.  If the owners are among the Top 8, we use them in the Top 8 correct?  So it's the Top 8 plus whichever owners would not be included otherwise.  Just want to make sure.

Keep in mind that there are categories of employees that can be excluded from the count of the number of employees.  For example, you can exclude anyone who :

• did not reach age 21 by the end of the determination year,
• did not complete 6 months of service during the determination year.  This typically involves employees where the time between the hire date and termination date is less that 6 months (e.g., hired later in the year prior to the determination year and terminated early in the determination year, or hired in the second half of the determination year),
• is not regularly scheduled to work more than 17.5 hours per week,
• normally did not work more that 6 months in any year of their employment,
• is in a union and excludable from the plan, or
• is a non-resident alien and exlcudable from the plan.

These exclusions are optional and could reduce the count of 37 to a lower number, particularly if you round down.

Keep in mind that the owners means more-than-5% owners in the event there are owners with 5% or less ownership.

Most importantly, keep in mind that the top-paid group election must be elected in the plan document.