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Whether an amendment is needed or not


HarleyBabe

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We've had a long running argument in my firm in regards to the following:

Have a cross-tested plan, 8 groups, typical plain Jane crosstested. Allocations chosen per group and allocated pro-rata within the group

One year, a young person leaves and that totally changes the results of the cross-testing, so some in our office say, just run the allocation integrated, it can be tested on a contribution basis and as long as it passes which of course it would, you're fine.

Here's my argument and if someone can give me proof, I'd be forever gratefu or maybe I'm wrongl. Doesn't that integration level have to be in the adoption agreement, so wouldn't we have to have a plan amendment stating that the allocation is now being performed on an integrated basis??

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You have to comply with the terms of the document of course, that's one of the requirements to keep a plan's tax-preferred status.

The document requires everyone in Group 1 to receive the same percent of pay as everyone else in group 1. Same for Groups 2 through 8, on a group-by-group basis, so 10.05% of all in Group 1 with 13% to all in Goup 2, etc. works okay.

As long as the end result shows that the above is still true after trying to allocate an integrated-type formula, then you are okay. If you had each person in their own class it would be much easier.

The participant statement might also need to say something about the integration formula used (I am guessing about that).

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Doesn't that integration level have to be in the adoption agreement

Of course it does. It's a shame that you have to waste your time on this. The trick is to come up with an allocation using the existing groups that is close to what you would get under an integrated formula, which may or may not be possible. The bottom line is that you must use the general test to pass nondiscrimination, since you don't have a safe harbor formula, and you are going to run that test on a contributions, not benefits, basis.

Ed Snyder

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Doesn't that integration level have to be in the adoption agreement

Of course it does. It's a shame that you have to waste your time on this. The trick is to come up with an allocation using the existing groups that is close to what you would get under an integrated formula, which may or may not be possible. The bottom line is that you must use the general test to pass nondiscrimination, since you don't have a safe harbor formula, and you are going to run that test on a contributions, not benefits, basis.

Can you further elaborate on your response. I need proof that you just can't do this because to present.

Wouldn't non-discrimination automatically pass because they are all receiving the same percent.

Sorry, I need ABC explanations.

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Doesn't that integration level have to be in the adoption agreement

Of course it does. It's a shame that you have to waste your time on this. The trick is to come up with an allocation using the existing groups that is close to what you would get under an integrated formula, which may or may not be possible. The bottom line is that you must use the general test to pass nondiscrimination, since you don't have a safe harbor formula, and you are going to run that test on a contributions, not benefits, basis.

Can you further elaborate on your response. I need proof that you just can't do this because to present.

Wouldn't non-discrimination automatically pass because they are all receiving the same percent.

Sorry, I need ABC explanations.

Also, the only employee is young, from what you are saying above, are you saying it will still have to pass average benefits, which it won't and the rate group test. I just need specifics, sorry.

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Can you further elaborate on your response. I need proof that you just can't do this because to present.

As John noted, you have to follow the terms of the document. You can't just arbitrarily use some other allocation methodology, just because you know it is a safe harbor formula.

Wouldn't non-discrimination automatically pass because they are all receiving the same percent.

Well. you said you wanted to use integration, so they won't all get the same percent, although after imputing permitted disparity it should be adjusted to nearly the same percent - if integrate at something other than 5.7% and something other than the TWB, and then you impute PD in the general test at 5.7% as you must, then you'll get different adjusted allocation rates.

As long as the rate groups are all over 70% you don't need the ABT.

Ed Snyder

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