410b PS with 401k Safe Harbor Match - coverage

[imchipbrown]

Client went through high turnover this year.

2 HCEs

1 NHCE > 1000 hrs

3 NHCEs terminated - 1 > 1000 hrs, 1 900 hrs, 1 < 500 hrs.  All left months apart, voluntarily.  Two were partially vested.

2 HCEs defer

3 NHCEs defer

HCE owners want to max his allocation.  Profit-Sharing has last day/1000 hr condition.

I think I have to add back 2 terminated NHCEs to pass 410b

Wrinkle - Plan has "New Comparability" checked as allocation. Historically, allocation has been Integrated.  I think I can allocate as if "integration" was check on the AA.

Just want to make sure my "bad news" is solid.

[RatherBeGolfing]

New comp doesn't mean you HAVE to cross test.  Allocate based on integration at TWB and test on based on allocation rates rather than cross test.

[Tom Poje]

you did not indicate if 'each person is in their own group'

if the answer is 'yes' then for 401(a)(4) coverage (not discrimination testing' you can ignore the terminee <500 hours. so you have 3 NHCEs.

if only 2 benefit your coverage is 67% and that fails since each person is in their own group and you can't use avg ben test to prove you pass.

so in that case, yes, you have to add 2 NHCEs.

[imchipbrown]

Thanks Guys,

It's been a long time (if ever) not passing ratio %.  Even though regs are crystal clear you have to test components separately (PS, 401k, 401m),  you never know with this stuff.

I checked "New Comp" on all my restatements as a kind of knee-jerk reaction to "latest thing everyone should have".  Seems of little use in practice and very difficult to explain.  Rather Be Golfing, I'll continue the Integration (difficult enough to explain :-}  )

Oh, yes Tom, each person is their own group.

[Bird]

Search for "exclude-one-llc-partner-from-permitted-disparity" for a recent thread on this topic.  Unfortunately there was some extracurricular activity at the end but the early comments might help.

The upshot is that although your document may say "New Comp" as a choice under allocations, it really means "something other than a pro-rata or integrated allocation," e.g. "everybody gets what I say they get."  New comp is a testing method, not an allocation method.  You should be able to use an integrated formula (at 100% of TWB) to calculate contributions, scratch your head and say "mmm, I think these will be my contributions." then general test them on a contributions basis and pass.

 

 

 

 

[imchipbrown]

Thanks, Bird.  Historically we have used 100% TWB, which should be fine. 

Issues with other than TWB?  (I mean, still inside the normal stuff for "over 80, less than 100, etc").  In case someone else looks up this thread.  No worries if it's not off the top of your head.

[Bird]

On 1/25/2019 at 1:55 PM, imchipbrown said:

Issues with other than TWB?

When you general test you have to use the TWB, so if you use those other parameters (that are...um, I want to say "safe harbors" when doing a true integrated allocation) you'd (likely) fail.

[imchipbrown]

Interesting.  Thank you Bird.  Check a box, go to jail :-}

 

[Tom Poje]

I'm confused by the statement "you have to use TWB when you use the general test".  there is no requirement you have to impute disparity when you test, if that is what is meant by the term.

for instance if all the NHCEs received 3% safe harbor and the HCEs received 9% (which is fine for gateway) then if you impute disparity the NHCEs E-BARs stay the same since you can't impute disparity on safe harbor, but the HCERs e-bars get larger because you impute on the rest of contribution.

I understand the post is not talking about a 3% / 9% situation, but..

[BG5150]

Tom, what I think everyone meant by that is if you are imputing disparity, you have to consider 100% to the TWB, even if your PS allocation is using less than that amount.

[Bird]

16 hours ago, BG5150 said:

Tom, what I think everyone meant by that is if you are imputing disparity, you have to consider 100% to the TWB, even if your PS allocation is using less than that amount.

Correct; I was careless and did not say "if you are imputing disparity."

[Tom Poje]

thanks for the clarification