[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.414(q)-1]

[Page 702-703]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.414(q)-1  Highly compensated employee.

    Q&A-1--Q&A-8: [Reserved]. See Sec. 1.414(q)-1T, Q&A-1 through Q&A-8 
for further guidance.
    Q-9: How is the top-paid group determined?
    A-9: (a) [Reserved]. See Sec. 1.414(q)-1T, Q&A-9(a) for further 
guidance.
    (b) Number of employees in the top-paid group--(1) Exclusions. The 
number of employees who are in the top-paid group for a year is equal to 
20 percent of the total number of active employees of the employer for 
such year. However, solely for purposes of determining the total number 
of active employees in the top-paid group for a year, the employees 
described in Sec. 1.414(q)-1T, A-9(b)(1) (i), (ii) and (iii)(B) are 
disregarded. Paragraph (g) of this A-9 provides rules for determining 
those employees who are excluded for purposes of applying section 
414(r)(2)(A), relating to the 50-employee requirement applicable to a 
qualified separate line of business.
    (i)-(iii) [Reserved]. See Sec. 1.414(q)-1T, Q&A-9(b)(1) (i) through 
(iii) for further guidance.
    (2) Alternative exclusion provisions--(i)-(ii) [Reserved]. See Sec. 
1.414(q)-1T, Q&A-9(b)(2) (i) and (ii) for further guidance.
    (iii) Method of election. The elections in this paragraph (b)(2) 
must be provided for in all plans of the employer and must be uniform 
and consistent with respect to all situations in which the section 
414(q) definition is applicable to the employer. Thus, with respect to 
all plan years beginning in the same calendar year, the employer must 
apply the test uniformly for purposes of determining its top-paid group 
with respect to all its qualified plans and employee benefit plans. If 
either election is changed during the determination year, no 
recalculation of the look-back year based on the new election is 
required, provided the change in election does not result in 
discrimination in operation.
    (c)-(f) [Reserved]. See Sec. 1.414(q)-1T, Q&A-9 (c) through (f) for 
further guidance.
    (g) Excluded employees under section 414(r)(2)(A)--(1) In general. 
This paragraph (g) provides the rules for determining which employees 
are excluded employees for purposes of applying section 414(r)(2)(A), 
relating to the 50-employee requirement applicable to a qualified 
separate line of business.

[[Page 703]]

    (2) Excluded employees--(i) Age and service exclusion. All employees 
are excluded who are described in Sec. 1.414(q)-1T, A-9(b)(1)(i) 
(relating to exclusions based on age or service). For this purpose, the 
rules in Sec. 1.414(q)-1T, A-9 (e) and (f) (relating respectively to 
the 17\1/2\-hour rule and the 6-month rule) apply. However, the election 
in Sec. 1.414(q)-1T, A-9(b)(2)(i) (permitting the employer to elect 
reduced minimum age or service requirements) does not apply.
    (ii) Nonresident alien exclusion. All employees are excluded who are 
described in Sec. 1.414(q)-1T, A-9(b)(1)(ii) (relating to the exclusion 
of nonresident aliens with no U.S.- source income from the employer).
    (iii) Inclusion of employees covered under a collective bargaining 
agreement. All employees are included who are described in Sec. 
1.414(q)-1T, A-9(b)(1)(iii)(A) (relating to employees covered under a 
collective bargaining agreement) and who are not otherwise described in 
paragraph (g)(2) (i) or (ii) of this A-9. For this purpose, the 
exclusion in Sec. 1.414(q)-1T, A- 9(b)(1)(iii)(B) and the related 
election in Sec. 1.414(q)-1T, A- 9(b)(2)(ii) do not apply.
    (3) Applicable period. The determination of which employees are 
excluded employees is made on the basis of the testing year specified in 
the regulations under section 414(r) and not on the basis of the 
determination year or the look-back year under section 414(q).
    (h) Effective date. The provisions of this A-9 apply to plan years 
and testing years beginning on or after January 1, 1994.
    Q&A-10 through Q&A-15: [Reserved]. See Sec. 1.414(q)-1T, Q&A-10 
through Q&A-15 for further guidance.

[T.D. 8548, 59 FR 32915, June 27, 1994]