FAQ 1119: 414(s) ratio calculation

Problem: How is the 414(s) Non-HCE to HCE ratio calculated?

Solution: As of September 2019 we updated how the system comes up with the percentage when comparing the HCE and NHCE group ratios. We discovered in rare situations that with the previous method the percentage could indicate a more than 3% spread. When in actuality this was not the case. This previous ratio percentage maintained no reference to the Regulations. Therefore, we changed the “Ratio of Non-HCEs to HCEs” reference to “Non-HCEs to HCEs” and revised the percentage for that field to the following formula: (100.00 - (HCE Avg - Non-HCE Avg.)). This percentage change will represent a more accurate indicator for the de minimis standard by showing a percentage above or below the 97.0% red line in determining if the compensation is non-discriminatory.