Guest rickw Posted January 8, 2003 Posted January 8, 2003 I have used an attachment to make this small plan more readable. After distilling all the help on this board, see if I have come up with a way for a small doctor's plan to allow spouse 100% 401k deferral using restructuring. Thanks!
Guest rickw Posted January 8, 2003 Posted January 8, 2003 Here is the missing attachment from first message.
Tom Poje Posted January 8, 2003 Posted January 8, 2003 looks like Dave 'Walt' Baker fixed the file attachment problem. Good job Walt, good job.
AndyH Posted January 8, 2003 Posted January 8, 2003 You got it, Rick. Go forth and teach restructuring.
Guest rickw Posted January 8, 2003 Posted January 8, 2003 Andy: Thanks especially to you and Merlin -- and reading some of the old master's posts from a year ago!
Guest Tbrown Posted January 9, 2003 Posted January 9, 2003 Rick, The only thing that jumped out at me is that someone would likely not be able to defer $11,000 on a salary of $12,000. They wouldn't have enough room for FICA. But since this is just an example, I'm sure it doesn't matter. Tim
Guest Trumpy! Posted January 9, 2003 Posted January 9, 2003 I have a quick question since I am seeing restructuring for the first time. Would the plan also pass nondiscrimination, without restructuring, if the document restricted the SHNEC to NHCEs and gave no employer contribution to the spouse? The EBAR of the spouse, for determining rate groups, would be 0 so that all employees came into his/her rate group and would pass under the ratio percentage test. I think you would avoid the ABT under this scenario. Granted that the spouse would lose $360.00 in employer contribution. But the plan would be slightly less complicated as well.
AndyH Posted January 9, 2003 Posted January 9, 2003 Yes, the spouse and the NHCE in her component plan are being tested on a contributions basis. The one rate group in that component plan is the spouse and everyone in that component plan with a equal or greater employer nonelective contribution (as a percent of pay). So as long as she gets no more than the NHCE as a percent of pay, that rate group is 100% and it passes and avoids the ABPT.
jkharvey Posted February 2, 2003 Posted February 2, 2003 Quick question related to your plan design. How do you define groups in the plan document? You have staff1 and staff2 receiving different allocation percentages so it seems to me that they are in different allocation groups that would have to be identified in the document. Thanks
jkharvey Posted February 3, 2003 Posted February 3, 2003 Another question about this design. AndyH posted that the spouse's component plan was being tested on contributions. Are you saying this because Rick W. used the terms "safe harber dc plan" when he described how 401(a)(4) was passed for this component? In other words, if all of the NHCEs and the spouse are receiving the same % of compensation (let's say 5% since that meets the gateway), this component passes w/out further testing, right? The other component plan, the Doctor's part, has NHCEs who also receive only 5% as their discretionary contribution, but this component is cross-tested and the Doctor's rate group passed in this instance. I know that Rick's example didn't use 5% but to keep things simple I'm assuming that all NHCEs receive the 5% (gateway) of compensation as their contribution. The Doctor then receives an amount that takes him to $40,000 total. I just used this concept for one of our small doctor/spouse plans and I'm amazed to see it work. Doctor has maxed at $40,000 and spouse defers $12,000 out of $15,000 total compensation. I'm afraid I'm missing something.
AndyH Posted February 3, 2003 Posted February 3, 2003 jk harvey, You must test the component which includes the spouse for two things. First, you must make sure that such component passes coverage by treating the other component people as not excludable and not benefitting. And generally you must pass ratio/percentage in this test. Then you must also pass rate group testing for each rate group in the component plan. In this case there is probably just one component, at 5%. So just because you have a component with a 5% formula does not mean that it passes; it must satisfy coverage and rate group testing. And remember that if all rate groups are not at 70%, you must proceed to the average benefits percentage test, which includes deferrals so this could be a problem in some cases. And regarding document language, you simply name one group as, for example, owners, or physicians, and the second group all others. And if you want more language detail purchase Sal Tripodi's outline, which is excellent. I did. It cost $195 and is available here: http://www.cyberisa.com/erisa_docs.htm
jkharvey Posted February 3, 2003 Posted February 3, 2003 The reason I'm still confused is this. The Regs say that the component plan must meet 401(a)(4) as if it were a separate plan. This would include using the safe harbor uniform allocation formula. If a plan meets this safe harbor, then rate group testing is not needed. Corbel's 2002 Cross-Tested Plan Specialty Workshop program materials include an example where each component plan met the safe harbor and did not go any further w/ rate group testing. Of course, in this example the components were designated based on separate divisions of the corporation and not on assogmomg specific NHCEs to go along w/ specific HCEs based on the EBAR amount needed to pass some form of restructuring. Perhaps this is the difference, I don't really know. I would appreciate any light anyone can shed on this for me.
AndyH Posted February 3, 2003 Posted February 3, 2003 I don't know if I understand your question or not, but yes I think you are right. If the 5% group passes coverage, it can avoid rate group testing because it is a safe harbor. But the plan as a whole still might be subject to the ABPT if any of the other rate groups are under 70%.
jkharvey Posted February 3, 2003 Posted February 3, 2003 Thanks AndyH. Your point is exactly why I'm concerned about this one. It looks like both rate groups (one rate group for each component plan) will pass RPT and not need to proceed to the ABT. For the component plan of the doctor I pulled in 2 of the NHCEs who had received the 5% allocation. This component plan and its one rate group pass coverage. 2 NHCE benefitting/5 total NHCEs / 1 HCE benefitting/2 total HCEs. The wife's component plan passes ratio percentage w/ 3 NHCEs benefitting/5 total NHCEs / 1 HCE benefitting/2 total HCEs. If, in fact, the spouse's component plan passes 401(a)(4) because of safe harbor (looks like it passes anyhow because of RPT) then there is a whopper of a contribution for Doctor and spouse versus 3% 401(k) safe harbor and 5% gateway for the NHCEs.
AndyH Posted February 3, 2003 Posted February 3, 2003 I don't think we are connecting. Sorry, but I have no idea what you are saying. Care to explain?
jkharvey Posted February 3, 2003 Posted February 3, 2003 Sorry for the confusion. Basically, here is what I have. It is very similar to the small plan posted above. There are 2 HCEs (doctor and spouse) and 5 NHCEs. The Plan document provides for 2 separate groups for contribution purposes, Dr. and all other employees. The spouse and all NHCEs receive a 3% contribution for 401(k) Safe Harbor and 5% discretionary contribution. The Spouse defers $12,000. The Doctor defers $12,000, receives 3% 401(k) Safe Harbor and receives $22,000 discretionary PS contribution. Traditional cross testing won't work because the spouse's rate group can't pass the test. I restructure into two components. First component has Doctor and 2 NHCEs w/ the highest EBARS. Second component is spouse and remaining 3 NHCEs. The Spouse's component passes ratio percentage test for 410(B) so first hurdle is met. The 401(a)(4) requirement is met because of the uniform allocation formula. The Doctor's component doesn't meet safe harbor uniform allocation formula and must use general test (cross-testing in this case). This component has one rate group (doctor). All of the NHCEs in this component have EBARS greater than the doctor's EBAR. This component passes 410(B) using ratio percentage test. The 401(a)(4) test is also met because the rate group meets ratio percentage test. Is this making sense now?
jkharvey Posted February 3, 2003 Posted February 3, 2003 Thanks for all of your help. Talking this through has helped me find my error. My spouse's rate group doesn't pass RPT and I would need to use ABT which won't work at all. I knew it was too good to be true.
AndyH Posted February 4, 2003 Posted February 4, 2003 Sure it does. The spouse's component's R/P is 3/5 / 1/2=120%. Your analysis is correct. Everything passes.
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