SECTION 11. EFFECTIVE DATE

This revenue procedure is effective July 17, 1995.

APPENDIX

MODEL LANGUAGE

(Note to Sponsor: The following two options are designed to be used by sponsors of plans with salary reduction,

matching, or after-tax features that wish to amend their plans to use the simplified method of determining HCEs provided for in section 4 of Rev. Proc. 93–42, but may be used by sponsors of other plans. A plan sponsor may adopt either option 1 or option 2. Option 1 provides model language for sponsors using the simplified method of determining HCEs that choose to apply this simplified method on the basis of the employer’s workforce as of a snapshot day. If option 1 is selected, the provided blank must be filled in with a snapshot day that is reasonably representative of the employer’s workforce and the plan’s coverage throughout the plan year. Option 2 may be used by sponsors that are not applying this method on the basis of a snapshot day. In determining whether the employee is a HCE, both options use compensation as defined under § 414(q)(7), and neither option allows the employer to use compensation that reasonably approximates the employee’s § 414(q)(7) compensation for the plan year. (The model language contains 2 sepa- rate optional provisions. M&P and regional prototype plan sponsors may adopt both options and allow adopting employers to elect between those options in the adoption agreement. Sponsors of volume submitter speci- men plans may prospectively offer both options in their specimen plan for adopting employers. Sponsors of indi- vidually designed plans (including adopters of previously approved vol- ume submitter plans) should adopt only one option.)

Option 1—Model Amendment to Use the Simplified Method of Determining Highly Compensated Employees and a Snapshot Day for Determining Highly Compensated Employees

This amendment is effective beginning on the first day of the following plan year: . The group of highly compensated employees (‘‘HCEs’’) includes any employee who is employed by the employer on the snapshot day and who (i) is a 5-percent owner on the snapshot day, (ii) receives compensation for the plan year in excess of the § 414(q)(1)(B) amount for the plan year, (iii) receives compensation for the plan year in excess of the § 414(q)(1))(C) amount for the plan year and is a member of the top paid group of employees within the meaning of § 414(q)(4), or (iv) is an officer on the snapshot day and receives compensation during the plan year that is greater than 50 percent of the dollar limitation in effect under § 415(b)(1)(A). If no officer satisfies the compensation requirement of (iv) above, the highest paid officer for such plan year shall be treated as a HCE.

For purposes of determining who is a HCE, compensation means compensation within the meaning of § 415(c)(3) as set forth in the plan for purposes of determining the § 415 limits, except that amounts excluded pursuant to §§ 125, 402(e)(3), 402(h)(1)(B) and 403(b) are included. If compensation used for purposes of determining the § 415 limits under the plan is not defined as total compensation as provided under § 415(c)(3) and the regulations thereunder, then for purposes of determining who is a HCE, compensation means compensation within the meaning of § 1.415–2(d)(11)(i) of the Income Tax Regulations, except that amounts excluded pursuant to §§ 125, 402(e)(3), 402(h)(1)(B) and 403(b) are included. If, as of the snapshot day, an employee is a family member of either a 5-percent owner (whether active or former) or a HCE who is one of the 10 most HCEs ranked on the basis of compensation paid by the employer during such year, then the family member and the 5-percent owner or top-ten HCE shall be aggregated. In such case, the family member and 5-percent owner or top-ten HCE shall be treated as a single employee receiving compensation and plan contributions or benefits equal to the sum of the compensation and contributions and benefits of the family member and 5-percent owner or top-ten HCE. For purposes of this section, family member includes the spouse, lineal ascendants and descendants of the employee or former employee, and the spouses of such ascendants and descendants.

The snapshot day will be . (The date selected must be a single day during the plan year that is reasonably representative of the employer’s workforce and the plan’s coverage throughout the plan year. In addition, if the employer uses a snapshot day in substantiating com- pliance with the nondiscrimination re- quirements of §§ 401(a)(4), 410(b), or 414(s), the same snapshot day must be used for purposes of determining the HCEs.)

The group of HCEs will also include any employee who during the plan year:

390 1995–2 C.B.

(a) terminated employment prior to the snapshot day and was a HCE in the prior plan year;

(b) terminated employment prior to the snapshot day and (i) was a 5-percent owner, or (ii) has compensation for the plan year which is greater than or equal to the compensation of any employee who is treated as a HCE on the snapshot day (except for employees who are HCEs solely because they are 5-percent owners or officers), or (iii) was an officer and has compensation greater than or equal to the compensation of any other officer who is a HCE on the snapshot day solely because that person is an officer; or

(c) becomes employed subsequent to the snapshot day during the plan year and (i) is a 5-percent owner, or (ii) has compensation for the plan year that is greater than or equal to the compensation of any employee who is treated as a HCE on the snapshot day (except employees who are HCEs solely because they are 5-percent owners or officers), or (iii) is an officer and has compensation that is greater than or equal to the compensation of any other officer who is a HCE on the snapshot day solely because that person is an officer.

The determination of who is a HCE, including the determinations of the number and identity of employees in the top paid group, the number of employees treated as officers and the compensation that is taken into account, will be made in accordance with § 414(q) and § 1.414(q)–1T of the temporary Income Tax Regulations to the extent they are not inconsistent with the method established above.

Option 2—Model Amendment to Use the Simplified Method of Determining Highly Compensated Employees

This amendment is effective beginning on the first day of the following plan year: . The group of highly compensated employees (‘‘HCEs’’) includes any employee who during the plan year performs services for the employer and who (i) is a 5-percent owner, (ii) receives compensation for the plan year in excess of the § 414(q)(1)(B) amount for the plan year, (iii) receives compensation for the plan year in excess of the § 414(q)(1))(C) amount for the plan year and is a member of the top paid group of employees within the meaning of § 414(q)(4), or (iv) is an officer and

receives compensation during the plan year that is greater than 50 percent of the dollar limitation in effect under § 415(b)(1)(A). If no officer satisfies the compensation requirement during the plan year, the highest paid officer for such year shall be treated as a HCE.

For purposes of determining who is a HCE, compensation means compensation within the meaning of § 415(c)(3) as set forth in the plan for purposes of determining the § 415 limits, except that amounts excluded pursuant to §§ 125, 402(e)(3), 402(h)(1)(B) and 403(b) are included. If compensation used for purposes of determining the § 415 limits under the plan is not defined as total compensation as provided under § 415(c)(3) and the regulations thereunder, then for purposes of determining who is a HCE, compensation means compensation within the meaning of § 1.415– 2(d)(11)(i) of the Income Tax Regulations, except that amounts excluded pursuant to §§ 125, 402(e)(3), 402(h)(1)(B) and 403(b) are included. If an employee is a family member of either a 5-percent owner (whether active or former) or a HCE who is one of the 10 most HCEs ranked on the basis of compensation paid by the employer during such year, then the family member and the 5-percent owner or top-ten HCE shall be aggregated. In such case, the family member and 5-percent owner or top-ten HCE shall be treated as a single employee receiving compensation and plan contributions or benefits equal to the sum of the compensation and benefits of the family member and 5-percent owner or top-ten HCE. For purposes of this section, family member includes the spouse, lineal ascendants and descendants of the employee or former employee, and the spouses of such lineal ascendants and descendants.

The determination of who is a HCE, including the determinations of the number and identity of employees in the top paid group, the number of employees treated as officers and the compensation that is taken into account, shall be made in accordance with the § 414(q) and § 1.414(q)–1T of the temporary Income Tax Regulations to the extent they are not inconsistent with the method established above.

ice as exempt from taxation under § 501(a), other than (i) social welfare organizations described in § 501(c)(4) that are not veterans organizations, (ii) agricultural and horticultural organizations described in § 501(c)(5), and (iii) organizations described in § 501(c)(6), are treated as satisfying the requirements of § 6033(e)(3).

.02 Section 501(c)(4) Social Welfare Organizations and Section 501(c)(5) Agricultural and Horticultural Organi- zations. Social welfare organizations recognized by the Service as exempt from taxation under § 501(c)(4) and agricultural and horticultural organizations recognized by the Service as exempt from taxation under § 501(c)(5) are treated as satisfying the requirements of § 6033(e)(3) if either (i) more than 90 percent of all annual dues (or similar amounts) are received from persons, families, or entities who each pay annual dues (or similar amounts) of $50 or less, (ii) more than 90 percent of all annual dues (or similar amounts) are received from organizations described in § 501(c)(3), state governments, local governments, entities whose income is exempt from tax under § 115, or organizations excepted under section 4.01 of this revenue procedure.

.03 Section 501(c)(6) Organizations. Organizations recognized by the Service as exempt from taxation under § 501(c)(6) shall be treated as meeting the requirements of § 6033(e)(3) if more than 90 percent of all annual dues (or similar amounts) are received from organizations described in § 501(c)(3), state governments, local governments, entities whose income is exempt from tax under § 115, or organizations excepted under section 4.01 of this revenue procedure.