Determine Ownership and Family Attribution

How is ownership determined?

For the purposes of your 401(k) plan, owners with an interest of more than 1% may be considered Key or Highly Compensated employees, or both. A participant’s ownership interest is the highest level of vote or value held at any point during the year. A participant who holds restricted stock or an exercisable option to acquire stock is treated as owning the stock for purposes of determining ownership.

Family Attribution of Ownership

For purposes of your 401(k) plan, a participant’s ownership interest is calculated by combining their ownership interest with that of any family member who is also an owner of and earns income from the company. Generally speaking, an employee who is a lineal relative (i.e. spouse, child, grandparent, or parent) of an owner is considered an owner for purposes of nondiscrimination testing. A grandchild, sibling, or in-law of an owner is not considered an owner based on attribution rules.

For example, if Jane owns 0.5% of ABC Company and her husband, John, owns 0.6%, they are both considered to be greater than 1% owners of ABC Company. Similarly, if Jane owns 2% and John owns 0%, both are considered more than 1% owners.

Review your Company Information regularly to confirm that all employees, including owners, children, and spouses of owners have been correctly identified. Review your Guideline Roster to make sure all employee statuses (such as active or terminated employees) are marked as such and are up to date. Generally, for employees who hold vested options or restricted stock, these holdings should be included in determining ownership percentage. Only family members employed by the company and eligible to participate need to be reported with Guideline.


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