Testing comp

[AndyH]

I have a cross tested PS/401(k) plan that fails 401(a)(4) on first attempt. I'm now looking for alternatives.

Plan allocations are based on gross wages (unreduced for elective deferrals).

The one owner has gross pay of $225,000 and defers $10,000. Almost all other employees defer to both 401(k) plan and to 125 plan.

I want to switch (for testing purposes only) to compensation less deferrals, which also qualifies as 414(s) comp. Under this approach, all employees have lower comp, thus higher EBARS, except the owner, who would still have the same EBAR because his comp for testing would still be $170,000, because $225,000 less his deferrals still exceeds $170,000.

This significantly improves my results. Anything wrong with this approach?

[Tom Poje]

Andy-

that sounds okay, I would make sure my document doesn't define 414(s) comp to include deferrals.

[AndyH]

Thanks for the quick response, Tom, but I'm not sure it matters what the document says, unless the document mandates the testing procedure.

Can't we test on any comp definition that satisfies 414(s), regardless of what comp the allocations are based on?

[Tom Poje]

I fret over things like that.

for example, here is the definition fron Corbel document a few years ago:

414(s) compensation - ...shall be made by including...amounts made to a salary reduction agreement.."

contrast that with the language that appears since we have restated the documents

'414 s compensation means any definition of compensation that satisfies the nondiscrimination requirements of 414(s) comp and the regulations thereunder.

I always worry when I have a definition specifically defined.

maybe I am just over cautious in that regard, but then what is the purpose of having 414(s) defined in the document? the ADP test? but that is simply an amounts test as well, so...

[AndyH]

Makes sense. Thanks.