child and non-discrimination classification testing

[wsp]

Where do you include the son of the president of the company in these calculations? The rate groups are as follows: president, all others. I know that the son gets the same contribution % as all other NHCE's but do I treat the son as a normal employee when it comes to testing? or do I pull him up into the HCE group for testing purposes? If I force him to be tested then they don't pass cause the kid is only 23 and most of the other employees are over 45. My predecessors didn't give him any contribution...is that correct?

Makes a huge difference to the prez's contribution where I include him as the population base is fairly small. I buy off on theory that spouse gets treated in same classification as prez for testing purposes, but his child too?

[Tom Poje]

he is an HCE (assuming by President you also mean 5% owner)

perhaps he was not given an allocation in the past because he was not age 21(or keys excluded from top heavy minimums and the only contribution allocated to that group of ees was top heavy contribution)

at this point in time it sounds like

your only out would be to break the group and do component testing, the son being in a group tested on an allocation basis - you can put people into components plans anyway you want.

[Guest merlin]

Tom, could you please clarify your last statement for me? It sound like you're saying that you can "cherry-pick" your component plans without restriction. Is that right? It was my understanding from Adrien LaBombarde that you can do this only if they all pass the ratio % test. A component plan that needs average benefit test to pass coverage must meet the "reasonable classification" requirement.

[Blinky the 3-eyed Fish]

You are correct Merlin, although in Tom's defense he didn't elaborate on the procedures.

[Tom Poje]

see 1.401(a)(4)-9©(2)

"...The employer may select the group of employees used for this purpose in any manner, and the composition of the groups may be changed from plan year to plan year. Every employee must be included in one and only one component plan under the same plan for a plan year."

1.401(a)(4)-9©(4)(i)

A component plan is deemed to satisfy the average benefit percentage test if the plan of which it is a part satisfies 1.410(B)-5

but then in (ii) ...Thus for example, a component plan that does not satisfy the ratio percentage test of 1.410(B)-2(B)(2) must still satisfy the average benefit test of 1.410(B)-2(B)(3) even though the plan of which it is a part satisfies the ratio percentage test.

.........

I am no expert on component testing, that is why I don't elaborate further without digging into my notes buried somewhere. the best I can give you immediately, direct from the regs.

..................

I would be curious as to how this plan even worked without the kid. if the kid is 23 the owner is ????50's???

Yet you indicated 'most' of the nonhighlies are over age 45

That doesn't look like a lot of age disparity needed for cross testing.