When not an HCE

Hi

Looking into designing a new CB plan for an existing 401k plan and trying to determine if Joe is an HCE or not for 2020.

Joe was 50% owner in 2019 and received 75k in salary.

Joe terminated in 2020 (not informed about the hours yet but let's say over 500) and sold his share to the other owner on 5/15/2020.

The new plan will be effective 1/1/2020 but adopted in November 2020. The val date will EOY.

As Joe was an HCE as of 1/1/2020, is he an HCE for all year by ownership?

Anything I am not thinking of? May be top 20% rule (not sure how it would apply here and effectively when).

Thank you

Joe was a greater than 5% owner in the look-back year.  That makes him an HCE.  Electing the top-paid 20% group rule won't change the result.

Joe is an HCE for 2020 because the highest ownership at any point in the current year was more than 5%

If Joe is employed at any point in 2021 he is also an HCE because his highest ownership percentage in the prior year was more than 5%.

Joe is also a Key Employee for those years as well.

Thank you both for your input.

Have a great weekend.

Hi All

A follow up question.

Are they also key for 2020?

Thank you