When applying the top-paid group election, whose compensation must be added back to determine HCEs?

In the context of determining Highly Compensated Employees (HCEs) under the top-paid group election, only those employees whose compensation falls below the threshold are considered for the addition back to the HCE count. This inclusion is necessary because the top-paid group election allows employers to define HCEs based on a certain compensation level.

When determining HCEs, the IRS specifically allows a plan to identify just the top 20% of employees by compensation and apply that standard, which can simplify compliance. However, when applying this definition under the top-paid group election, all employees below the specified compensation threshold are fairly re-evaluated to ensure that their compensation is accounted for accurately, particularly when assessing nondiscrimination tests.

This identification is crucial because accurately determining HCEs helps ensure compliance with tax laws and protects the plan's tax-advantaged status. Other options, such as including 5% owners, all employees, or union members, do not align with the criteria used in this specific election for recalibrating the pool of HCEs relevant for the testing period. Therefore, it is the employees below the threshold whose compensation must be added back to ensure the integrity of the HCE determination process.