classifications

[betheeg]

hello-

i have read some other posts on classifications, but did not find the answer i was looking for. i have a law firm that would like to set up a plan where each hce has the ability to max out, put in nothing, or anything in between. assuming the only way to do this is with a new comp plan giving them each their own class, any suggestions on what to use for the name of each class? 4 hce's- 1 owner 80%, 2 owners 10% each, the 4th hce not an owner but compensation makes him an hce.

thanks for any help.

[Tom Poje]

though some frown upon it, there is nothing wrong with defining classification by name. In fact, if you think about, the regs clearly say that if you have 'an enumeration by name or other criteria having the same effect' you can not use the reasonable classification test of 410(B). now, if you can't have an enumeration by name, then why do the regs specifically mention that possibility.

Note, that only applies to 410(B), not when you start testing under 401(a)(4).

you did not indicate the size of your population. lets see, if 19 total, then 20% = 3.8. you can round down, that would be 3 HCEs, and if the owners have the highest comp, then your 4th person would be an NHCE, if the document allows for top paid group election.

[betheeg]

wonderful suggestion!! i forget about the top-paid group election sometimes. when calculating the 20%, do i use all employees or just participating employees? i have 6 participants for this year, but 8 total employees. if i use the top paid election, how would you name the groups then? if one of my owner hce's becomes an nhce by using the top paid election, won't it hurt my testing if he is listed in his own class by name and chooses to not contribute for the year?

thanks for your help, tom.

[Tom Poje]

you have to follow the rules regarding the body count, it is not who is participating.

e.g. you can exclude ees who worked less than 6 months (from date of hire), those that forever avg less than 17 1/2 hours a week, etc.

[or you could just count anybody who was employed]

you are correct, the top paid group election helps if the 'hce' who converted to 'non higly compensated' gets something.

and usually it helps big time, especially if you are maxing him/her out.

You have all the usual issues - I would assume the individual has to get top heavy, but then would have to get kicked up to the minimum gateway, where if they were HCE you could leave them at the top heavy. Unless of course they were an officer and you excluded keys from minimums.

my head is spinning.

actually, if you set up classes by name, and he received nothing and was NHCE you would probably fail 410(B) ratio percentage, and you couldn't use reasonable classification. hmmm. a lot to digest.

[Blinky the 3-eyed Fish]

Don't forget the top paid election refers to last year's census information, not the current year's.

[Guest Trumpy!]

Just to add - the top paid group election will not cause a more than 5% owner to be considered an NHCE. Since all three of your owners own atleast 10%, they will all be considered HCEs regardless of the top paid group election.