2002 Cross Tested Top Heavy Integrated 401(k) Profit Sharing Plan

[Guest MCarey1]

Subject pretty much says it all. I am trying to maximize my HC's in a scenario for 2002 plan and confused is putting it lightly.

My plan is a 401(k) plan with a 3% match, the plan is top heavy and is integrated at 100% of social security wage base.

My object is to get my HC's to the max of 40,000 using deferrals of 11,000, match of 6,000 and 23,000 in profit sharing.

The 23,000 would equate to about 11.70% oveall for the HC's.

1/3 of that 11.70 would be 3.86%. If I post this 3.86%, will I still need to post an additional 3% to the ee's who did not defer and did not receive the 3% match which is being used to satisfy part of the top heavy. So in other words would a NHCE who defers nothing have to receive 6.86%? Or can the 3.86 satisfy both top heavy and the gateway. This is not a safe harbor plan.

I was in a Corbel seminar last week where the presenter said that the 3% safe harbor contribution could satisfy the TH, Gateway and Safe Harbor but could not be integrated?

Now I am confused. Any help

[Tom Poje]

your description is confusing. you said the plan is integrated at 100%.

If it is integrated, then it sounds like you do not have a 'class' plan, or cross tested plan, and therefore, everyone receives the same base % and the rest is integrated.

If the plan is not really integrated then if the HCE gets

11.7%, then nhce must get

3.86%. this will satisfy top heavy since it is above 3%. you can only impute disparity on the .86%.

remember, the 3.86 is mearly the gateway.

you still have to pass testing!

[Guest MCarey1]

Tom, I guess where I get confused in with the piece I can use integration. When I said 100%, I meant the plan is set up to allocate at 100% of the Taxable Wage Base of 89,400

So you are saying the that 3% Top Heavy cannot be subject to permitted disparity, but the remaining amount can. What part of the 11.70% can be integrated.

You also said that if it is integrated then I don't have a cross tested plan. I am posting to two different groups and both groups are receiving 5.70% for amount over the TWB and then an additional contribution which equates to the total overall of 11.70 and 3.86?

Is this wrong?

[Guest Tbrown]

Now you have me somewhat confused. As Tom states, it doesn't look like you have a cross-tested plan, but just an integrated one. If that is correct, then the first 3% that goes to everyone can be used to satisfy top heavy minimums. Where people get in trouble is if it's a safe harbor 401(k) plan. In that scenario, the first 3% that is used for an integrated allocation cannot be used to satisfy the 3% non-elective safe harbor.

But your allocation description does not make sense. If you are talking about new comparability (cross-testing), then as Tom says, the 3.86 is just the minimum gateway and won't necessarily pass testing. But if you are talking about a plan that is integrated with Social Security, then the fact that 11.70 is what you need to max the keys has nothing to do with the 3.86. You non-keys will get something more like 8.5 in an integrated plan.

[Tom Poje]

not wrong, unusual, something I wouldn't have expected.

I haven't seen a class formula like that, but I guess anything is possible. usually class plans are allocated comp to comp among the classes.

I was also confused on the description itself. you mentioned the Corbel seminar and safe harbor, but then I notice you said the plan was not safe harbor, so I will operate on that assumption.

so you are saying the following:

class 1

ee makes 200000, integration level=84900

so he gets 5.7% on 115100 = 6560.70

23000 - 6560.7 = 16439.30 or 8.21965 base % he is ok

for profit sharing 23000 / 200000 = 11.5%

class 2 is also intergated. the gateway requires a 3.83%

(1/3 of the HCEs rate)

thus, if anyone had comp above the integration level they would get 3.83 base plus 3.83 integrated. They can't get 5.7% unless you increase the base % (or you have some unusual document language)

since there is no safe harbor, you can impute on the entire profit sharing contribution. top heavy is no problem since everyone received above 3% (unless you have an hours requiremnent and you have an active participant with less than the hours required)

if the plan was 3% safe harbor, then an ee who receives 3.86% would have an e-bar consisting of the 3% (no disparity) plus .86% which could have disparity.

lets go one step further. lets say that the ee only received 3% safe harbor. then you could not impute disparity on him. the HCE who receives 9% could impute on 6%. But that would make no sense to do that. you are increasing the E Bar for the HCE and not for the NHCE.

is that a little clearer?

[Guest MCarey1]

Sorry for confusing everyone. IThe plan is not a safe harbor plan, I was just trying to clarify that I could not impute disparity if it was.

Tom, my numbers agree with yours for the first group. But the second group is getting the 3.86 overall plus those individuals over the TWB are getting an extra 5.70%. It is increasing the contribution. Should I only be doing 3.86%. I am unsure how to tell Relius to do that.

The 3.86% would pass the top heavy and the gateway, but I still have to pass the other discrim test using the ebar's. Right.

I've been told these plans are for the most experienced administators. Unfortunately I am the only one... I appreciate your help.

Marybeth

[Tom Poje]

no problem, I understand.

I have a problem with group 2 if the allocation is indeed

3.86 % base plus 5.7% integrated.

usually the excess % can not be greater than the base percent.

now, that being said, it could very well be the document says

allocate 5.7% on the excess and allocate the remainder on the base.

in Relius you have in plan specs:

Employer contribution rate % 3.8

% contrib in excess SS comp [normally left blank unless money purchase]

% alloc in excess SS Comp 5.7%

apply permitted disparity rules to excess Normally Yes

this will make sure the excess % does not exceed the base.

again, without seeing how the document is worded I can't say 100% on the coding, just what I would expect. hope that helps.

as a warning, if the plan was safe harbor using the 3%, Relius would impute on that piece, because their is no separate 'source' for the safe harbor at this time.