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Development company with around 50 employees in California. All of the employees would be considered NHCEs as none of them have any company equity and do not make more than $120k (Besides the CEO). All other employees would be NHCE because of this. Would like to set up a new comparability profit sharing program where the employees who did well on their projects (All NHCE) can be set to one "group" on the new comparability profit sharing plan and have the highest % rate. The HCE (CEO) would be set to the lowest % rate (1%) and thus, the remaining other employees would meet the gateway test if they were set as 0.35% (1/3 of HCE). Would this setup satisfy the cross-testing requirements along with any other requirements? Basically looking for a method to utilize profit-sharing but provide as much % possible to the employees excelling at their projects and providing as close to 0 as possible for other remaining employees (Which would include the CEO). Any advice would be appreciated!

Good afternoon to all, We have a prospect that has about 1800 employees, mostly in lower paid jobs, in the service industry (think restaurants as an example). Of the 1800, only 600 would be eligible if we use 1 year of service, dual entry, age 21. There are 12 HCE employees. All these employees are spread out over several corporations, but they are all owned by one man, so it's a controlled group. They have been presented a standard 401(k) plan with a safe harbor match to cover everyone and have rejected it. What they say they want is a deferral-only 401(k) plan for the NHCEs and a separate "carve out" plan (their terminology, not mine) that benefits only the HCEs for which the company would be willing to provide a match. We are somewhat aware of the existence of Non Qualified Deferred Compensation plans but our understanding of them is that they have so many drawbacks that they are not very popular anymore. We don't really think that the 12 HCEs will appreciate their contributions being a general asset of the employer, being subject to taxation if they leave and take the funds, etc. We understand that the contributions could be put into a Rabbi trust, but even then, they are still subject to the claims of creditors if the company experiences bankruptcy. All that makes this look like a doubtful solution. Are we missing some cutting edge, new plan design possibilities within the world of qualified plans? How have you addressed such requests, if you can share? As always, your comments and experiences are much appreciated.

Good morning to all, We have a client, a medical practice, with one owner-doctor, 100%, and two non-owner doctors, along with some rank and file employees. The plan was set up to exclude "non-owner doctors" from eligibility to participate in the plan. All the doctors are HCEs. Now, the owner-doctor would like to make an offer of employment to a new non-owner doctor and he wants to make the plan available to just this new non-owner doctor but not the two non-owner doctors he already has. We were thinking about amending the plan to simply exclude the two existing non-owner doctors by name. As we have never done that before, we are not 100% comfortable doing it without asking the advice of the experts. Would you do it that way or is there another technique? As an aside, every year when the rate group testing is done for the new comparability profit sharing contribution, our software includes the two existing non-owner doctors in the test, even though they are not eligible to participate in the plan. We are not 100% comfortable with that, either, and would like to know if this is really right. The fact that they are HCEs and they do not get a contribution helps to pass the tests and that doesn't really seem "fair" but if it is permissible, we will continue to take advantage of it. Thank you in advance for your advice!

Good morning to all, We have a takeover case in which we want to be sure we correctly identify the Key employees. We are not sure because we do not know anything about trusts. I know the following is convoluted but I am not making this stuff up! The company was started by two brothers, who we will call Bill and Sam. Bill is the president of the company, and Sam has passed away. The ownership of the shares of the company are as follows: 24.7% belongs to a Q-TIP trust for the wife of Sam who is not an employee. We aren't worried about this. 41.1% belongs to Bill. That's a no-brainer. He's an owner and President of the company. Key and HCE. Bill's 3 kids are on the payroll. One of them owns 0.8% of the stock outright. Another 15.9% of the stock is in a trust for Bill's 3 kids, who are treated equally under the trust. To our knowledge, the trust and the percentages are irrelevant here. The fact that the kids are on the payroll and their father owns 41.1% of the stock is sufficient to make all of them Keys and HCEs. Now comes the part we are not sure about. Sam, remember, is deceased. Sam's 4 kids are on the payroll too. One of Sam's kids owns 1.6% of the company outright. Then, as in the case of Bill's kids, 15.9% of the stock of the company is in a trust for these 4 kids and they share equally in it. So one son has his own 1.6% that he owns outright plus 3.98% that he indirectly owns through the trust for a total of 5.58% of the stock being for his benefit. His 3 siblings just have the 3.98% each that they own indirectly through the trust. Are Sam's kids Key and HCE or not? We don't know what impact the trust has on making this determination. Our suspicion is that maybe the son who has the total of 5.58% is a Key and maybe the siblings who only have 3.98% are not, because they have less than 5%? We'd much rather hear what the experts have to say than just go on our suspicions. None of these children, neither Bill's nor Sam's, has a sufficiently high salary to be considered an HCE just on that basis. None is an officer of the company with a sufficiently high salary to be considered a Key just on that basis. It's all about the stock. Your advice will be greatly appreciated.

There is a safe harbor plan that is top heavy. The plan also has a New Comp and wants to exclude 3 Non-Key employees from receiving a Profit Sharing. These Non-Key Employees are also HCE that are excluded from receiving the Safe Harbor Non-Elective. Can those individuals be excluded from receiving the 3% Top Heavy/Minimum Gateway OR do they have to receive a funding.

Doctor plan has 4 partners and two HCEs, no NHCEs. They work at a variety of hospitals, so it is highly unlikely that the company will ever have NHCEs, so there aren't any discrimination issues with regard to counts or amounts testing. We have generally determined benefits by job classes, so the initial plan was set up using one formula for partners, one for non-partner HCEs. Could they further refine the formulas to be by person?

I have a prospect with two car dealerships. They have multiple employees who work at both locations, including two HCEs who work at both locations but only take a salary at one. This gives me two HCEs in the one company with zero pay and zero deferrals. One of the HCEs is the owner so I can’t really mark him as terminated in the plan where he does not have comp. What would you do in this situation? Do I leave them in the test? My questions for them are: 1. Are there two plans or one 2. Is this a controlled and/or affiliated service group, i.e., an employer with multiple entities ( to which all entities singed a participating employer agreement) and as a result all such entities participate in this single plan. Anything else I should know? I assume I can test combined or separately, as long as 410(b) passes separately

A follow up to this discussion http://benefitslink.com/boards/index.php/topic/35611-hce-determination-question/ It appears that 414(q)(8) only determines if a person is considered an employee for HCE determination. So if a person begins having U.S. Income in mid-2016, they are considered an employee for plan purposes. 414(q)(1)(B) says, "For the preceding year (i) had compensation from the employer in excess of $80,000, and..." What are your thoughts on including the non-resident alien's income earned outside the U.S. with the same company for the purpose of 414(q)(1)(B) for 2015 and 2016?

I need confirmation on HCE determination and testing. Company was started in 2009, then was purchased by equity firm which caused a plan term (no assets transferred). Company was an adopting employer on the new plan. Company was then sold as a spin off and they are no longer related to equity firm and they created a new plan and no assets were transferred and the participants had the option to roll funds over to the new plan from the prior plan. This company had the same EIN the whole time. Does this make a difference in testing/HCE determination?

If the IRS disqualifies a prviously qualified plan: 1. If a participant was an NHCE then bcame and HCE only in the last year, is his full benefit taxable? 2. Of the taxable distribution, is he required to pay a 10% penalty is he is under age 50?

Odd situation. Employee (Bob) terminates employment with Employer and begins taking distribution of a large benefit from Employer's nonqualified (stock unit) plan. That benefit is in 10 annual installments. If counted, each such installment is over the HCE comp threshold. Should those payments be counted when Bob is rehired to determine whether he's an HCE? If so, when? The question is crucial for Bob because Employer's qualified plan excludes all HCEs. The qualified plan's definition of compensation for HCE determinations is--by cross-reference to § 1.415©-2(d)(4)--wages reported in Box 1 of W-2 that are "compensation to an employee by his employer." (Are payments to Bob from the nonqualified plan payments from Employer, for this purpose?) Per the 415 final regs, post-severance payments are excluded from this comp definition. (Are the installments "post-severance" even after Bob is rehired? Do the payments from the nonqualified plan count in determining whether Bob is an HCE his first year he's back? The next? Ever?) I'm sure there's a rifle-shot answer to this that I'm not seeing. Thanks for any thoughts.