A colleague is studying for her ASPPA exams, and she has been given advice I do not agree with. For a new plan effective January 1, 2005, she has been told that there are no highly compensated employees due to compensation greater than $90,000. The reasoning is that there was no prior plan year. However, the company itself was started in 2000. Therefore, my argument is that there are HCEs based upon prior year's compensation since the look-back year is "the twelve month period prior to the determination year". In this instance, the calendar year election is immaterial since the plan year is the calendar year.

Can someone please clarify?

Thanks!

you are correct. it is only in the case of a new company their would be no prior comp.
all that being said, was this in a book that might have a typo that needs correcting, or perhaps wording that needs to be described?

My advice - 401(k)(3)(E)

401(k)(3)(E) For purposes of this paragraph, in the case of the first plan year of any plan (other than a successor plan), the amount taken into account as the actual deferral percentage of nonhighly compensated employees for the preceding plan year shall be --

401(k)(3)(E)(i) 3 percent, or

401(k)(3)(E)(ii) if the employer makes an election under this subclause, the actual deferral percentage of nonhighly compensated employees determined for such first plan year.



If you don't have to consider then HCEs then this wouldn't be in the regs.

This was just the opinion of the teacher, not in the materials.