Highly Compensated Employee

For employer-sponsored, tax-advantaged retirement plan purposes, anyone who is a 5% owner of a company or who received more than $110,000 in compensation in 2010 (the compensation limit is adjusted annually). If the employer chooses, a highly compensated employee may also be defined as any employee whose pay is in the top 20% of compensation for that company.

When a company contributes to a defined-benefit or defined-contribution plan for its employees and those contributions are based on the employee's compensation, the Internal Revenue Service wants the company to minimize the discrepancy between the retirement benefits received by highly compensated and lower compensated employees. If the difference is too great, the company can lose the tax deduction it gets for the retirement plan.


Investment dictionary. . 2012.

Look at other dictionaries:

  • highly compensated employee — (HCE) USA Any employee who either: • Was a 5% owner of the employer at any time during the year or the preceding year. • Had compensation in excess of $110,000 (in 2010) as indexed, in the preceding year and, if the employer so elects, was in the …   Law dictionary

  • non-highly compensated employee — (NHCE) USA An employee who is not a highly compensated employee. Practical Law Dictionary. Glossary of UK, US and international legal terms. www.practicallaw.com. 2010 …   Law dictionary

  • Key Employee — An employee with a major ownership and/or decision making role in the business. Key employees are usually highly compensated. They may also receive special benefits as an incentive both to join the company and to stay with the company. Key… …   Investment dictionary

  • specified employee — USA A key employee (as defined by Section 416(i) of the Internal Revenue Code (IRC)) of a publicly traded company. Specified employees are generally employees that satisfy any of the following conditions: • They own more than 5% of their employer …   Law dictionary

  • Nonqualified deferred compensation — In the United States, the question whether any compensation plan is qualified or non qualified is primarily a question of taxation under the Internal Revenue Code (IRC). Any business prefers to deduct its expenses from its income, which will… …   Wikipedia

  • Cash balance plan — A cash balance plan is a defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan. The hypotheticality of the individual accounts was crucial in the early adoption of such plans… …   Wikipedia

  • General nondiscrimination — The 1986 Tax Reform Act introduced the General Nondiscrimination rules which applied to qualified pension plans and 403(b) plans that for private sector employers. It did not allow such pension plans to discriminate in favor of highly compensated …   Wikipedia

  • NHCE — non highly compensated employee (NHCE) USA An employee who is not a highly compensated employee. Practical Law Dictionary. Glossary of UK, US and international legal terms. www.practicallaw.com. 2010 …   Law dictionary

  • HCE — highly compensated employee (HCE) USA Any employee who either: • Was a 5% owner of the employer at any time during the year or the preceding year. • Had compensation in excess of $110,000 (in 2010) as indexed, in the preceding year and, if the… …   Law dictionary

  • disqualified person — USA In the context of certain employee benefit plans, a person who is one of the following: • A fiduciary. • A person providing services to the plan. • An employer that has any employees covered by the plan. • An employee organization that has… …   Law dictionary

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