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Hi to All, We have a 401(k) plan for a non-profit entity with a new comparability formula for the profit sharing. The intention in the design was to have each participant in his own group and to vary the contribution level at will. There are no HCEs and of course no "owners". Can the employer give 10% of pay to the 3 oldest employees and nothing to the 3 youngest employees? Can the contribution be literally whatever they feel like giving to each person? We are so accustomed to the world of small closely held companies that it's hard to think outside the parameters of normal non-discrimination testing. Our first instincts are to say "Oh no, you can't do that!" but perhaps you can! Any thoughts? Thank you as always.

If a company adopts a 401(k) plan midyear retroactively to the beginning of the year and an employee met the eligibility requirements at the beginning of the year, but terminates employment prior to the adoption date, must he be included in the 401(a)(4) testing? Must he receive the 3% non-elective safe harbor contribution?

This is a takeover New-Comp Plan. We looked back at the 2012 and 2013 years and while the client made a gateway contribution, in each year, the rate-group test prepared by Relius showed a required contribution of around 9% of nHCE pay in each year. The CPA says that is OK because the pass the 410(b) Ratio Percentage test.My response was that the Plan is cross tested,hence it must pass BOTH the rate group tests and the average benefits test...he adamantly states "No way". I'd like a second opinion. Here's some background and a few questions. The Plan defines 2 Classifications [Rate groups] –Principals and all others. The Plan Document states the allocation method for non-elective contributions uses the “Participant Group Allocation Method”. There are 2 principals and 6 nHCEs, one of whom was hired 5/1/2013. The Plan permits deferrals for employees with 6 months of service[entry date is monthly]. A Safe Harbor NE contribution is required for all employees meeting that same requirement. Class based Non elective contributions are also allocated to the same employees. Each year the maximum 415 contribution is calculated for the Principal with the lowest compensation. That percentage is then applied to both Principals’ compensation. If a Principal with higher compensation receives a prospective allocation greater than the 415 limit, such Principal’s allocated contribution is capped at the 415 limit. A gateway contribution is then calculated for the nHCEs equal to the lesser of 5% of compensation or 1/3 the highest Principal’s allocation percentage. The Plan is a Non-elective Safe Harbor Plan so the 5% gateway is satisfied through the combination of 3% Safe Harbor + a 2% Non-elective contribution. The Plan is then subjected to Rate-group testing under 401(a)(4). Question 1 Must this Plan be tested under IRC 401(a)(4), The General Nondiscrimination Test? If so, must the General Nondiscrimination Test include “Rate Group testing”? Question 2 Are there any options available to pass general non-discrimination not using rate group testing? Question 3 What does it mean for an otherwise excludable employee to be “separately tested”? If the Plan required only 6 months of svc for a Safe Harbor Non-elective, would that same Otherwise Excludable Employee be entitled to a gateway contribution? Question 4 Is a Gateway contribution required for employees that have been employed less than one year/age 21 when the Plan requires a Safe Harbor Contribution for such employee? May those less than one year/age 21 employees be excluded from the 401(a)(4) General Test? Question 5 The General test shows that approximately 9% of payroll must be contributed for nHCEs in order to pass the rate group test. The employer , in 2013 and 2012 contributed less than the required 9%. The 2013 tax return has been filed. Can one make self corrective contributions for employees in 2014 to correct that error or must some other correction procedure be used.