Highly Compensated Employee

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Highly Compensated Employee

An employee who owns 5% or more of the company for which he/she works or who makes more income than a certain amount set by the IRS. For tax purposes, highly compensated employees contribute less in tax deductible earnings to a qualifying retirement plan. This is because IRAs and other retirement plans do not qualify for tax advantages if their structures seem to favor highly compensated employees more than other employees.
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The bill known as the Tax Cut and Jobs Act of 2017 (theAct) in Internal Revenue Code (IRC) Section 4960 imposes a 21 percent excise tax on employers for any remuneration in either or both of two specific situations: amounts in excess of $1 million paid to a covered employee by an applicable tax-exempt organization for a taxable year, and/or any separation or parachute payments made to a highly-compensated employee (defined by the IRS as greater than $120,000 for 2018) terminating employment that is equal to or greater than three times the average W-2 earnings of that individual for the five years prior to the year oftermination.
Department of Labor to a) increase the highly-compensated employee threshold from $100,000 to $134,004; b) update every three years the salary threshold for exemption (tied to the 40th percentile of full-time salaried workers in the country's lowest income region); c) amend the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new standard salary level; and, d) maintain the "duties test" for executive, administrative and professional employees.
Or, at the time the policy was issued, the employee was either a director of the corporation, a highly-compensated employee under IRC [section] 414(q), or was among the highest-paid 35% of the corporation's employees; and
* The demand for retirement planning solutions for highly-compensated employees will have spurred product development activity (64 percent).
"[But] the retirement readiness movement will present a challenge for highly-compensated employees for whom 401(k) plans and 409(A) non-qualified deferred compensation plans are imperfect solutions.
* It ensures that highly-compensated employees can maximize their pre-tax contributions to the plan; and
And their failure to prepare for retirement can interfere with the retirement planning of the highly-compensated employees, called HCEs and defined as those who own at least 5 percent of the company or earn $115,000 or more in 2012.
* Benefit caps: Group LTD plans typically have benefit caps based on more moderate income levels, which may limit the amount of income replacement more highly-compensated employees can receive.
A noncontributory split-dollar plan (e.g., an endorsement employer-pay-all plan) for a select group of management or highly-compensated employees is exempt from these requirements, except for the requirement that plan documents be provided to the Secretary of Labor upon request.
Highly-compensated employees are assumed to receive a large annual allocation, generally the maximum amount permitted under the Section 415 annual additions limit (the lesser of $49,000, as indexed for 2009, or 100% of compensation).
In order to be nondiscriminatory, a dependent care assistance plan (DCAP) may not discriminate in favor of highly-compensated employees (or their dependents) as to eligibility to participate or as to contributions or benefits and must satisfy a concentration test.
When discussing disability insurance, particularly as it refers to highly-compensated employees and professionals, there appears to be a distinct lack of understanding of the mechanics of disability income insurance coverage.

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