highly compensated employee

Definition

For the purposes of retirement plans, an employee who owns 5% or more of a company or receives compensation in excess of a predetermined amount. To qualify for tax advantages, retirement plans cannot be overly favorable to highly compensated employees.

Use this term in a sentence

You need to make sure that you always do right with your highly compensated employee so that you do not lose them.

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The highly compensated employee owned shares in the stock ownership plan of the company as part of his remuneration package.

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Because John was the CEO and owned 20% of the company, he was considered a highly compensated employee. They had to make sure the retirement plan was not overly favorable to him or they would be disqualified for tax advantages.

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actual deferral percentage (ADP) average contribution percentage