FAQ 634: HCE--Top paid group should be less than ASC is calculating

Problem: I am running the HCEs and Keys using the top paid group election for this plan. My employee count for the prior year (2005) is 9 employees, 20% would be 1.8 or 2. When I run the test and round, it comes up with 3 HCEs, when I run the test and truncate it comes up with 2 HCEs. When I read the instructions, it looks like either rounding or truncating should produce 2 HCEs based on the prior years total employees. Could you please explain what the system is doing here?

Solution: The way the rules work is that owners are all HCEs regardless of their compensation. You then apply the top paid group percentage based on compensation. Because one owner only has comp of 58K, she doesn't count against the top paid group count, which has to bring in one HCE non-owner to meet the 2 top paid employeess rule.