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Defining "HCE" and "Key" in a 401(k) plan is an important step towards keeping your plan compliant. When discussing a 401(k) plan, nondiscrimination testing, or compliance, these two terms most frequently used. They are integral in maintaining the 401(k) plans qualified status.
Technically, it's not a What, it's a Who. HCEs or Highly Compensated Employees are a classification of participants in a retirement plan. An HCE is any employee who satisfies at least one of the following criteria at any time during the Plan Year:
Key Employees are important in determining whether or not a retirement plan, like a 401(k), is Top Heavy. A plan with Key Employee balances in excess of 60% of the total plan assets will be Top Heavy. Regulations provided in IRC §416 (IRC = Internal Revenue Code) govern the Top Heavy rules.
A Key Employee is any employee meeting at least one of the following criteria at any time during the Plan Year:
A 401(k) Plan must remain qualified. A 401(k) TPA analyzes the HCE and Key employees during advanced compliance testing. To maintain its qualified status and to demonstrate nondiscrimination a plan must be tested. Qualified plans enjoy tax-deferred status (exempt from taxation) when compliant.
Uniglobal is a 401(k) TPA. Uniglobal performs advanced compliance testing on all qualified plans. Plan sponsors work with our teams to keep their retirement plan running smoothly for the benefit of the plan participants and their beneficiaries.
Original Posting Date: February 5, 2019, updated for higher limits.