Who is an Officer, Highly Compensated or Key employee?

Within the context of a 401(k) plan, certain participants are considered to be Highly Compensated Employees (HCEs) or Key employees. Participants are classified in this manner for the purpose of conducting required nondiscrimination testing to ensure the plan is not disproportionately benefiting highly-paid employees and owners. You can visit this article to learn more about ownership and what this means for your plan. 

You are a Highly Compensated Employee (HCE) in 2021 if you:

  • Earned more than $130,000 in 2020 and were in the top 20% of all employees ranked by compensation (also known as  Top Paid Group); or
  • Own more than 5% of the company sponsoring the 401(k) plan, (including stock options and restricted stock), or
  • You may also be an HCE if you are the spouse, child, grandchild, or parent of a greater than 5% owner depending on attribution rules.

You are a Key employee if you:

  • Are an officer earning over $185,000 in 2021 (or 2020); or 
  • Own more than 5% of the business; or 
  • Own more than 1% of the business and earn over $150,000 
  • You may also be a Key Employee, if you are the spouse, child, grandchild, or parent of a >1%+ or >5%+ owner depending on attribution rules.

Who is an officer?

For purposes of your 401(k) plan, officers will generally include the president, vice-presidents, general managers, and others who perform duties normally corresponding to those positions. Determination of whether an employee is an officer is based on their actual authority in the company and not on their title. Keep in mind if you’re an officer earning more than $185,000, you will automatically be deemed a Key Employee. This determination may impact your Top Heavy testing results.


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