Pesh notes that, under ERISA, NQDC plans must be limited to a select group of highly compensated employees
Who are highly compensated employees
for purposes of the qualification requirements?
(1) This may limit the relative tax advantage available to highly compensated employees
under a savings plan or any other defined contribution plan.
Inclusion, in other words, depends on the proportion of total payments that went to highly compensated employees
. This percentage will then be multiplied by each highly compensated employee
The need for annual IRS nondiscrimination tests that may limit contributions by highly compensated employees
(HCEs) were eliminated with the advent of the Safe Harbor 401(k) plan.
In 2002, a highly compensated employee
can set aside $11,000 through a deferred compensation arrangement and also, if discrimination testing permits, contribute $11,000 (plus $1,000 extra, if age 50 or older) to the savings plan on a tax-deferred basis.
A company offering only a qualified plan is limiting to the highly compensated employee
. This may result in defections of your top management to competitors.
Prior tax law defined a highly compensated employee
as a 5% owner, an employee who received compensation more than $100,000 (in 1996), an employee who was included in the top 20% of employees based on compensation and who received compensation more than $66,000 (for 1996), or an officer who received more than $60,000 compensation (in 1996).
Highly compensated employees
who receive dependent care assistance under a plan that does not qualify as a DCAP under Sec.
For this purpose, a "rate group" exists for each highly compensated employee
in the plan, and consists of the highly compensated employee
and all other employees in the plan (whether highly compensated or nonhighly compensated) who have a normal accrual rate greater than or equal to the highly compensated employee
's normal accrual rate, and who also have a most valuable accrual rate greater than or equal to the highly compensated employee
's most valuable accrual rate.
Instead, the plan is designed to provide maximized benefits to highly compensated employees
, and benefits for other employees are designed to provide whatever is required by nondiscrimination regulations under IRC Section 401(a)(4).
Under prior rules, the compensation paid to certain highly compensated employees
, including benefits to and contributions for those employees, were aggregated with compensation, benefits and contributions relating to other family members in order to make certain that the plan did not favor highly compensated employees