FAQ 495: HCE--2005 terminated employee shows as HCE for 2006

Problem: I updated one of my plans to 2006 to determine the HCEs for the 2006 Plan Year. When I did the calculation, an HCE that terminated employment in 2005 shows up as HCE for 2006. Why?

Solution: The system uses the lookback year to determine HCEs, which is 2005 in your case. Even if an HCE terminated in 2005, they are technically an HCE for 2006. However, they would not show up on any tests if the plan specs show a plan year beginning of 1/1/2006, due to their termination date in 2005.