What constitutes a highly compensated employee?
According to the 2009 rulebook, a highly compensated employee makes more than $110,000 a year. The IRS doesn’t want 401k plans to favor a company’s top brass. Consequently, employers must make annual assessments to ensure that their highly compensated employees (HCEs) aren’t contributing a far greater percentage of their salaries to the 401k plan than lesser paid employees. If the employees who earn less than $110,000 a year at your company are contributing to the 401k plan at a lower rate than HCEs, your contribution limits may be lowered.
