Is the determination year considered the current plan year for the purpose of HCE determination?

The determination year is indeed considered the current plan year when making highly compensated employee (HCE) determinations. The HCE classification is crucial for compliance with non-discrimination testing under the 401(k) plan regulations.

During the determination year, companies evaluate employees' compensation levels and identify those who qualify as highly compensated based on their earnings. This assessment directly affects the non-discrimination tests, such as the ADP (Actual Deferral Percentage) and ACP (Actual Contribution Percentage) tests.

By using the current plan year as the determination year, the company ensures that it recognizes the most up-to-date compensation levels and can accurately classify its workforce. This prevents discrepancies in the financial implications of HCE status, which is vital to maintain the tax advantages of the plan.

Utilizing the determination year in this manner aligns with the regulatory framework that guides retirement plan administration, ensuring compliance and fostering equitable participation in retirement savings programs across different employee levels.