FAQ 398: ADP--Disaggregation--Statutorily excludable HCE not in the disaggregated group


Mr. James is a highly compensated employee who should be in the disaggregated group of less than 1 year and age 21, however, he still shows up as part of the non-disaggregated group. On the 410(b) test he does show up correctly.


The laws governing disaggregation are different for ADP versus 410(b). For ADP, the law allows you to either put the HCE in the <21,1 group and run an additional ADP test OR you can keep them in the main test, exclude those <21,1 from any test and not run an additional test. Under the ADP/ACP "Correction Setup" screen there is an option called 'Include HCE in disaggregated group'. This option becomes enabled when 'Print disaggregated test results' is selected.

If you would like to run it the other way, you can do this using location codes. Set everyone over 21,1 in location 1, and everyone under 21,1 in location 2, then run the tests by location.