Defining Terms

Employee Retirement Income Security Act of 1974 (ERISA): A federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

Fiduciary: A person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons)

Registered Investment Adviser (RIA): an investment adviser (IA) registered with the Securities and Exchange Commission

Highly Compensated Employee (HCE): For any plan year, a “highly compensated employee” is any owner and/or employee who meets at least one of the following criteria:

(1 ) a greater than five percent owner at any time during the plan year or the preceding plan year; or

(2) for the preceding year, individual’s compensation exceeds the applicable dollar limit ($125,000 when 2019 is the preceding year), and for some Plans was in the top 20% paid group of employees (see Plan Document) for the preceding year. Code Sec. 414(q)(1)(C).

It is a good idea to identify your HCEs early in the plan year (e.g. once the prior year compensation data is available).

For many Plans, identifying their IRS HCEs is the most common step/check in following the nondiscrimination requirements for tax qualification. Coverage, contribution testing, and testing the plan’s benefits, rights, or features are all based upon correctly identifying your Highly Compensated Employees.