Allocation limit?

[pbarrett]

I know it is too simple of a question to even ask, but--

Assuming I can pass the gateway, can I give the key owner an allocation of more than 25% of the total profit sharing contribution?

I've taken eligible comp times 25% and reached "X". The key makes $80,000. This is a straight ps plan. If I can pass the gateway can I actually give the key let's say 35%???

As long as my total amount is 25%, I pass the gateway, does it matter how high I take the key's allocation %???

[pmacduff]

Individual limit is the lessor of 100% or $40,000, so as long as the owner does not exceed $40,000 and the testing passes, you should be fine. Your addressing 2 different/independent limits, the 25% Employer deduction limit overall and the individual 415 limits of 100% of pay or $40,000.

[Guest merlin]

What do you mean by a "straight ps plan"? If you're not using x-testing the gateway is not an issue. If you are, the gateway is not a safe harbor, it's only the price of admission. You might have to give more than the gateway to your NHCEs to justify a higher allocation to your HCE.

[pbarrett]

Good point. By straight ps plan, I meant new comp only- no deferral or match contributions to worry about.

[Earl]

Remember Gateway increases when an HCE gets over 25%

Under the gateway, if the aggregate normal allocation rate of the HCE with the highest aggregate normal allocation rate under the plan (HCE rate) is less than 15 percent, the aggregate normal allocation rate for all NHCEs must be at least one-third of the HCE rate. If the HCE rate is between 15 percent and 25 percent, the aggregate normal allocation rate for all NHCEs must be at least 5 percent. If the HCE rate exceeds 25 percent, then the aggregate normal allocation rate for each NHCE must be at least 5 percent plus one percentage point for each 5-percentage-point increment (or portion thereof) by which the HCE rate exceeds 25 percent (e.g., the NHCE minimum is 6 percent for an HCE rate that exceeds 25 percent but not 30 percent, and 7 percent for an HCE rate that exceeds 30 percent but not 35 percent). The final regulations provide that a plan is deemed to satisfy this minimum aggregate allocation gateway if the aggregate normal allocation rate for each NHCE is at least 7½ percent of total compensation determined over a period otherwise permissible under the timing rules applicable under the definition of plan year compensation.

[Mike Preston]

Earl, I disagree. The gateway can exceed 5% only if the plan in question is a DB/DC combination plan. Otherwise, it is no more than 5%. It's late on a Friday, so my brain might be fried, but that is what my notes say without looking it up.

[Earl]

thanks Mike... looks like i took that out of context and ignored the "aggregate".

Looks like I could have saved that one client (with the wife in the plan) a little money.

[AndyH]

Wow is all I can say.