Do you need to adjust compensation for family members of HCE to calcul

[Guest Suzanne Bernhardt]

I am wondering if I need to adjust an owner and his wife's compensation before calcualting their contribution. Here's the situation: 100% owner and wife both work for company. Owner's compensation is $200,000 and wife's compensation is $230,000. I know that they are both considered owners because of attribution rule. Do I need to aggregate them because they are husband and wife, and therefore adjust both of their compensation amounts down so that the sum of both does not exceed $170,000 for purposes of allocation the profit sharing contribution? Or do I not aggregate their compensation amounts, and simply allocate each contribution using $170,000 for each person. Please help...:confused:

[Guest earthy]

Yes, effectively, under the 401(a)(17) regulations you need to aggregate the "family members" of the HCE. Family members for purposes of this rule includes the employee's spouse and lineal ascendants who have not attained age 19 by the close of the year.

[Tom Poje]

Generally the answer is no, but that depends on your document itself.

A number of years ago the regs had this rule most people referred to as Family Aggrevation.

In 1997 it was eliminated, though if I recall, you could actually retain it...or, perhaps, you could keep it depending on how your document was worded. (But only for allocation purposes)Some documents merely referenced the regs instead of actually saying you prorated the compensation.

anyway, it is restatement time.

and so, unless you have a DB plan that specifically stated you pro rate the comps, and you are trying to keep costs down, you restate your document properly, if need be.

The following is from Sal Tripodi's checklist for operational compliance during the GUST Remedial amendment period:

B. Repeal of Family aggregation

1. Begining with 1997 plan year, family aggregation provision MUST be ignored when running coverage and nondiscrimination

2. What was the first plan year in which the plan's aggregation provisions were ignored to determine the amount of contributions allocated to a participant or the benefit accrued for a participant?