Highly Compensated Employees Defined for ADP/ACP Testing

Pursuant to IRC 414(q), a highly compensated employee (HCE) is any employee who:

  • was more than 5% owner of the employer during 2015 or 2014; or
  • received compensation from the employer in excess of $115,000 for 2014. (The employer may elect to limit the number of employees in this category to those who are in the top 20% of employees for 2014).

Compensation for defining HCE’s is all compensation actually received, plus amounts deferred because of a 401)k) plan, cafeteria plan or tax sheltered annuity plan. It includes all salaries, fees, commissions, bonuses and tips, even though the plan’s definition may not include these for purposes of allocating the employer contributions. The compensation used for ADP testing, however, may exclude 401(k) plan deferrals and cafeteria salary deferrals if the 401(k) plan so provides. Compensation in the 401(k) plan may be excluded for testing purposes.

The 401(k) salary deferral limit for 2015 is $18,000.

Compensation greater than $265,000 for 2015 will not be considered for all plan purposes.

Click here to learn about Key Employees for top heavy testing.

About Mark Nolan

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