Plan Comp or Full Year Comp for Testing?

We have a calendar year 401(k) Plan with entry dates of 1/1 and 7/1. The plan excludes compensation before plan entry. A young, Non-Key HCE entered the plan on 7/1 and needs to receive the 3% top heavy minimum on pay for the full year. When performing cross-testing we are only using the employee’s pay while eligible (7/1-12/31) and it is blowing the test.

Question: Could we use pay for the whole year when doing our new comparability testing? The plan document does not specify what compensation to use when cross-testing.

Thank you!

Yes, as long as you use the same definition of compensation for all participants.

You might also consider restructuring your test into component plans to avoid testing the young HCE on accrual rate.

Thank you!