Overlooked testing tool for large service employers.

Large professional service groups (e.g., law firms and medical clinics) sometimes forget to take advantage of an optional testing method for their 401(k) and cross-tested plans. This testing option allows the plan administrator to reclassify certain highly compensated employees (HCEs) as nonhighly compensated employees (NHCEs). This recharacterization can have the effect of increasing benefits for the NHCE group and easier passage of a compliance test. This testing option is generally referred to as the "top paid group limitation." It is quite useful when more than 20 percent of plan participants earn in excess of $90,000, and would otherwise be HCEs.

HCEs are individuals who were, in the current or prior year, a "more than 5-percent owner," or whose gross compensation in the prior year exceeds an annual dollar threshold. For the 2003 testing year, that compensation threshold is …