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Anyone Drafted a Cross-Tested MPPP?


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Has anyone set up a cross-tested MPPP? I have a client that wants to max contibutions at $30,000 for the two HCE's, but only has two NHCE's. Comp for each HCE is $120,000. The plan passes discrimination with a 25% contribution for each of the HCE's and 10% for the two NHCE's. Obviously, this won't work under a p/s plan due to section 404. What about MPPP requiring 25% for HCE's and 10% for NHCE's? Would the plan need to be amended if employee demographics change? Are there better ways to accomplish my client's goals? Am I being too aggressive? Thanks.

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I have done some back office work on a plan that allocates 3% (actually it might be more than that) simply to cover top heavy. The cross tested portion is then allocated in the profit sharing plan. This freed up enough $ in the profit sharing plan to cover the 15% limit.

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Tom, I assume you mean the 3% contribution is to a money purchase plan, with the rest of the contribution to a profit sharing plan. If my assumption is correct, What is the 404 deduction limit for these two plans? I think that it would be 15% for the profit sharing plan, plus the amount required for the money purchase plan, but limited to a maximum of 25%. If I'm correct, it might be possible that the amount of the contribution needed to get an HCE with $120,000 comp to the 415 limit will exceed the deduction limit of these two plans.

Since 401(a)(26) no longer applies to DC plans, how about a money purchase plan that covers only the HCEs, with a contribution of $30,000 for each. The profit sharing contribution would be to NHCEs only, with the plans aggregated for testing.

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that would certainly be a possibility (under the current regs of course)

assuming of course that the profit sharing contribution to the NHCEs is enough to pass testing and be under the 15% deductibility that would work as well.

I suppose you might have to be careful on document wording in regards to top heavy...which plan will allocate the minimum, etc.

2001 looks like an interesting year if the annual addition does indeed reach 35,000 or 40,000. to max the owners will require a larger contribution to the rank and file - thus accomplishing what the govt wants!

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Thanks for the ideas. I'm still wondering though why I can't simply cross-test a MPPP with contributions designated in the document of 25% to the two owners and 10% to the NHCE's. Am I missing something?

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You can do exactly as you propose, but a cross tested money purchase plan alone does not have the flexibility of the MP - PS combination.

For example, one year the contribution necessary to pass 401(a)(4) may be only 5% for the NHCEs, but the MP plan has a 10% contribution rate. The next year it may take an 11% contribution rate to pass.

But, if employee demographics are not expected to change, the single MP plan will work, if flexibility is not a concern.

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Due to the age of one HCE (34), using two plans, one with the top-heavy minmum and the other cross tested, will cost more that one. (And is also the reason for the relatively high 10% contribution for the NHCE's.) The client is willing to pay the 10% even it would be less in some years. What if it needs to be higher in a given year. Can the plan be amended to increase it to say 11% for the NHCE's? Thanks. Great dialogue here?

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