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Highly Compensated Employee (HCE)

Last Updated October 18, 2012

Definition

Any employee who --

  • Was a 5-percent owner at any time during the year or the preceding year, or
  • For the preceding year -- had compensation from the employer in excess of $80,000 ( indexed- see chart below), and
  • If the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year.

Year

2006

2005

2004

2003

2002

2001

2000

HCE Threshold

100,000

95,000

90,000

90,000

90,000

85,000

85,000

 
 
 

Year

2013

2012

2011

2010

2009

2008

2007

HCE Threshold

 $115,000

 $115,000

 $110,000

 $110,000

$110,000

$105,000

$100,000

An employee is in the top-paid group of employees for any year if he/she is in the group consisting of the top 20 percent of the employees when ranked on the basis of compensation paid during the year.

An employee is treated as a 5-percent owner for any year :

  • If the employer is a corporation, any person who owns more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or
  • If the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer.
 

Referring Cite

IRC § 414(q)(1)

Additional Helpful Information

A qualified plan must perform nondiscrimination testing to ensure contributions or benefits do not discriminate in favor of HCEs