Basic Guidelines to New Comparability / Cross Testing Available?

[Guest crosseyedtester]

I'm just wondering if someone is aware of basic guidelines to conducting the cross testing (as opposed to explaining what the cross testing is). I have been asked to do a training for my co-workers and thought perhaps there might be something already available. I have not come across one.

Thank you.

[Tom Poje]

give an example of exactly what you mean. I can't tell if you mean the number crunching end of things, what situations make good candidates, etc.

[imchipbrown]

Hi Tom,

Just wandering through the boards and saw this thread. I think what the question posed was how to do the number-crunching, step-by-step.

Chip Brown

[Fred Payne]

Tom, are you suggesting that there are some actual rules of thumb other than "those who are to get the highest allocation should be 10 or more years older than everyone else"?

I've always thought of cross-testing as generally unexplicable. I'm frequently surprised once the numbers are run if a census works or not. Too much reliance on the "black box."

[Tom Poje]

you can never tell whats in the pickle jar until you get the lid off.

I've seen proposals done that shows a plan can be cross tested and get the owner big bucks. Someone plugs the numbers into the software or spreadsheet, and simply produces a report. No report that says, "oh, by the way, if the 21 year old quits, this plan is blown out of the water" Those drive me crazy, because you know somewhere down the line will be the famous 'no one told me'

The difference in age of 10 years (for around 50% of the NHCEs) is a good starting point, but there are a number of other factors involved.

How many HCEs are there, and are you trying to max all of them.

Remember for each HCE you don't favor, your 'denominator' changes -especially if the kids are in the plan. That only helps.

Do you know what happens if you have a difference in age of 17 years? Try it!

1.085 ^ 17 = 4.002

so giving the owner a 20% contribution, requires 5% to the NHCE, which is the gateway minimum as well. Thus an age weighted plan will cost less.

Another factor is of course, if the plan has deferral and matches.

currently, at least from what I have seen, the most common plan would be a safe harbor 401k with a 3% SHNEC just so you pass the ADP test, owner can max out deferral, etc, and then kick in an extra 2% at most in profit sharing to the rank and file.