What is a Highly Compensated Employee (HCE)?
The ADP for a group of eligible employees is the average of the actual deferral ratios of the eligible employees in that group. (Employees are considered eligible if they are directly or indirectly eligible to make elective contributions under the 401k plan for all or any portion of the plan year. (Employees are considered eligible even if their right to make elective contributions has been temporarily suspended on account of a plan loan or distribution, or because of an election not to participate in the plan. However, an employee is not considered an eligible employee if, upon beginning employment or upon first becoming eligible to participate in the plan, an employee makes a onetime election not to participate in the plan or any other 401k plan maintained (whether presently or in the future) by the employer).
