What percentage of employees does the top-paid group election limit for the lookback year?

The top-paid group election limit for the lookback year is set at 20% of the employees in the organization. This percentage is established under the regulations governing 401(k) plans, which allow employers to identify a "top-paid group" for certain testing purposes.

This group typically consists of the highest-paid employees in the organization, and identifying this cohort is important for complying with internal revenue service (IRS) requirements. By limiting the group to the top 20%, organizations can simplify their compliance efforts and focus their testing on a manageable number of employees, reducing administrative burdens.

The significance of this limit is tied to the overall philosophy of 401(k) regulations, which aim to ensure fair treatment of employees in retirement plans while allowing for flexibility in plan design at the employer's discretion. The thresholds set forth, including the 20% limit, reflect the desire to achieve a balance between effective plan design and adherence to compliance requirements.