Code of Federal Regulations Title 26. Internal Revenue § 26.1.414(q)–1 Highly compensated employee

Q&A–1 to Q&A–8:  [Reserved]. See § 1.414(q)–1T, Q&A–1 through Q&A–8 for further guidance.

Q–9:  How is the top-paid group determined?

A–9:  (a) [Reserved]. See § 1.414(q)–1T, Q&A–9(a) for further guidance.

(b) Number of employees in the top-paid group—(1) Exclusions. The number of employees who are in the top-paid group for a year is equal to 20 percent of the total number of active employees of the employer for such year. However, solely for purposes of determining the total number of active employees in the top-paid group for a year, the employees described in § 1.414(q)–1T, A–9(b)(1)(i), (ii) and (iii)(B) are disregarded. Paragraph (g) of this A–9 provides rules for determining those employees who are excluded for purposes of applying section 414(r)(2)(A), relating to the 50–employee requirement applicable to a qualified separate line of business.

(i) to (iii) [Reserved]. See § 1.414(q)–1T, Q&A–9(b)(1)(i) through (iii) for further guidance.

(2) Alternative exclusion provisions—(i), (ii) [Reserved]. See § 1.414(q)–1T, Q&A–9(b)(2)(i) and (ii) for further guidance.

(iii) Method of election. The elections in this paragraph (b)(2) must be provided for in all plans of the employer and must be uniform and consistent with respect to all situations in which the section 414(q) definition is applicable to the employer. Thus, with respect to all plan years beginning in the same calendar year, the employer must apply the test uniformly for purposes of determining its top-paid group with respect to all its qualified plans and employee benefit plans. If either election is changed during the determination year, no recalculation of the look-back year based on the new election is required, provided the change in election does not result in discrimination in operation.

(c) to (f) [Reserved]. See § 1.414(q)–1T, Q&A–9(c) through (f) for further guidance.

(g) Excluded employees under section 414(r)(2)(A)—(1) In general. This paragraph (g) provides the rules for determining which employees are excluded employees for purposes of applying section 414(r)(2)(A), relating to the 50–employee requirement applicable to a qualified separate line of business.

(2) Excluded employees—(i) Age and service exclusion. All employees are excluded who are described in § 1.414(q)–1T, A–9(b)(1)(i) (relating to exclusions based on age or service). For this purpose, the rules in § 1.414(q)–1T, A–9(e) and (f) (relating respectively to the 17 1/2 –hour rule and the 6–month rule) apply. However, the election in § 1.414(q)–1T, A–9(b)(2)(i) (permitting the employer to elect reduced minimum age or service requirements) does not apply.

(ii) Nonresident alien exclusion. All employees are excluded who are described in § 1.414(q)–1T, A–9(b)(1)(ii) (relating to the exclusion of nonresident aliens with no U.S.- source income from the employer).

(iii) Inclusion of employees covered under a collective bargaining agreement. All employees are included who are described in § 1.414(q)–1T, A–9(b)(1)(iii)(A) (relating to employees covered under a collective bargaining agreement) and who are not otherwise described in paragraph (g)(2) (i) or (ii) of this A–9. For this purpose, the exclusion in § 1.414(q)–1T, A- 9(b)(1)(iii)(B) and the related election in § 1.414(q)–1T, A- 9(b)(2)(ii) do not apply.

(3) Applicable period. The determination of which employees are excluded employees is made on the basis of the testing year specified in the regulations under section 414(r) and not on the basis of the determination year or the look-back year under section 414(q).

(h) Effective date. The provisions of this A–9 apply to plan years and testing years beginning on or after January 1, 1994.

Q&A–10 through Q&A–15:  [Reserved]. See § 1.414(q)–1T, Q&A–10 through Q&A–15 for further guidance.