ADP Testing - Determining HCEs and NHCEs

Hi.  I am getting confused on what year's compensation to use in determining HCEs and NHCEs.

We are doing the testing for the 2020 Plan Year.  We use the Prior Year method.

To determine 2020 HCEs, do we look to see who made over $125k in 2019?  And ignore 2020 comp altogether?

For 2020, any one who made more than $125,000 in 2019 is an HCE for 2020. This list can be restricted to the top-paid group with an election.

In addition, anyone who owns more than 5% of the business at any time in 2019 or 2020 is also and HCE regardless of compensation or TPG status.

11 minutes ago, Lou S. said:

For 2020, any one who made more than $125,000 in 2019 is an HCE for 2020. This list can be restricted to the top-paid group with an election.

In addition, anyone who owns more than 5% of the business at any time in 2019 or 2020 is also and HCE regardless of compensation or TPG status.

Thanks Lou.  For purposes of my questions, I am ignoring the ownership and top-paid group election.  I am just focusing on the compensation part of the test.

My follow up question is for the NHCEs.  Since we are doing the Prior Year Testing method.  We compare the 2020 HCEs to the 2019 NHCEs.  To determine the 2019 NHCEs, would they be all of the folks that made less than $120k in 2018?  

Yes, you compare the 2019 ADP/ACP of the NHCEs in 2019 to the 2020 ADP/ACP of the HCEs.

What about the officer compensation threshold issue?

On 2/2/2021 at 2:28 PM, Lou S. said:

 

In addition, anyone who owns more than 5% of the business at any time in 2019 or 2020 is also and HCE regardless of compensation or TPG status.

And don't forget ownership attribution.

Side note:  when did they get rid of HCE attribution due to compensation?  Like when the wife was an HCE due to comp only and the husband wasn't.  He'd be considered and HCE by attribution. I seem to remember it in the mid-90's

Wow, that's a blast from the past. Family aggravation (er, aggregation) - was that for HCE status? Although I have flushed this from my memory, clinging shards seem to remind me that this was for maximum contribution levels - I don't necessarily recall that it was for attribution for HCE purposes. But I'm working with a pretty dim bulb on that.

Thankfully, all I really care about is that it is long gone!!

As to the side note - Family aggravation of comp was the worst. I think it came in with TRA 86 (?)  with and went out around 98?  I honestly don't recall the laws that brought it in and out. That was where HCE husband and wife (maybe kids too?)  had one 401(a)(17) compensation limit. So if the comp limit was $150K and you had a husband and wife owner making $200K each then for plan purposes they each had $75K for allocation and testing but $200K in determining HCE. Good times. Almost as fun as 415(e) calcs. Thank god they got repealed as some point.

A google search tells me SBJPA 96 killed family aggregation of comp, shout out to benefits link for still having it back then https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=41