Contributing

What is highly compensated employee HCE threshold for nondiscrimination testing?

What is highly compensated employee HCE threshold for nondiscrimination testing?

The Major 401(k) Nondiscrimination Tests For 2020, an HCE is defined as an individual that meets one of the following criteria: They own more than 5% of the employer (either directly or by family attribution) at any time during 2019 or 2020. They received more than $125,000 in compensation from the employer during 2019 …

What is considered a highly compensated employee?

A highly compensated employee is defined as an employee that owns more than 5% of the interest in a business at any time during the year or the preceding year.

When Should non-discrimination testing be done?

NDT should be performed by the last day of the current plan year and include all employees who were employed on any day during the plan year. It’s also recommended that employers test once early or in the middle of the plan year.

What are the rules for highly compensated employees?

The IRS defines a highly compensated employee as someone who meets either of the two following criteria: Received $130,000 or more in compensation from the employer that sponsors his or her 401(k) plan in the previous year.

Can a highly compensated employee be non exempt?

If the employer does not make the make-up payment, the employee is not exempt as a highly compensated employee and is entitled to overtime pay under the FLSA, unless he or she meets the standard tests for exemption under the Regulations, Part 541.

What is ADP and ACP testing?

The ADP test is an acronym for the Actual Deferral Percentage test. It is a specific non-discrimination test that applies to employee salary deferral or 401(k) contributions. Similarly, the ACP test is an acronym for the Average Contribution Percentage test.

What is 401 A 4 testing?

Section 401(a)(4) contains the test for nondiscrimination that a qualified plan must satisfy. The purpose of this test is to assure that the benefits provided to highly compensated employees are proportional to those provided to nonhighly compensated employees.

What does a nondiscrimination test look at?

Nondiscrimination tests make sure everything is fair by looking at how much of their income different employees defer, how much the company contributes to employee accounts, and what percentage of assets in the plan belong to the HCEs and key employees.

When to use nondiscrimination testing for retirement plans?

If the disparity between the groups is too large, the company must either provide additional benefits to the non-HCE/non-key group or reduce the benefits provided to the HCEs/keys. That means our starting point is to identify those employees who are HCEs and/or key employees, and the Internal Revenue Code tells us exactly how to do that.

How to identify key employees for 2020 nondiscrimination testing?

Learn how to identify key employees and highly-compensated individuals for 2020 nondiscrimination testing using the latest information from the Internal Revenue Service.

Who is considered a non highly compensated employee?

All your eligible employees that don’t fit the above HCE requirements are considered non-highly compensated employees or NHCEs. Pretty simple. But it does get a bit more complex, so bear with us.