Leaderboard

Using a 3% non-elective safe harbor as a base is quite common as it guarantees no ADP testing failures but it's not generally enough to satisfy TH minimum or gateway on it's own. If you have no ADP testing concerns you don't necessarily need the safe harbor. Remember that the 3% SH can't have any hours or last day requirement so having it can often trigger an additional gateway contribution for people who terminate but are eligible for the SHNE. You typically need an additional profit sharing contribution to satisfy one or more of top-heavy minimum benefit, gateway contributions, and or §401(a)(4) nondiscrimination requirements. That's where you as consultant need to understand the plan demographics, client objectives, and be able to explain the pros and cons of what they will be adding and the likely contribution ranges for various employees they will be seeing going forward and that some of them may be guaranteed because of how the IRS rules work on various nondiscrimination tests whether they like or not in the future.

For me, I would want a sponsor to tell me in writing that they want to elect the alternative method. Then I'll prepare the premium filing using the alternative funding target. There is a checkbox to say that you are electing the alternative method, which would need to be checked. The rates for the alternative method are just the 430(h)(2)(C) segment rates without stabilization, which is to say, they are the segment rates used for calculating the maximum deduction limit. Your premium funding target using the alternative method is just your (vested) maximum funding target. Good question about the lookback month, it doesn't come up very often that a plan changes its lookback month. My guess is that if you changed the lookback month for funding purposes, it would also change for alternative premium funding target purposes. Remember that the segment rates for the alternative method are 24-month averages, so they will tend to be higher (=lower premiums) when interest rates are falling, and lower (=higher premiums) when interest rates are rising, as compared to the standard method (spot) rates. With interest rates looking to rise sharply this year, I would be very careful about recommending a sponsor switch to the alternative method now, since it will lock them in to the 24-month average rates for 5 years.