cross testing and family attribution - I'm confused.

[PensionNewbee]

A father owns 100% of the company. His two sons also work for the company. Does attribution apply to both children or just one?

Can I create an Owner class for the father and an Other Highly Compensated category for the sons?

Are the sons required to get the same % contribution as the father?

What testing is done and how is it passed in this situation?

And if there are other non-family highly compensated employees, can I put them in a separate class and have an "all other employees" class as well? I'm feeling a bit over my head at the moment.

[AndyH]

Both

Yes, if you have the type of document that permits it.

No, not if they are in a different class, and the document states that different classes can receive different contribution levels.

If you have no NHCEs, you don't have anything to test. If you have NHCEs, you have a lot of things to test, starting with coverage testing and nondiscrimination testing. The testing specifics depend upon who is eligible for the the plan, what the allocations are, and what the benefits, rights and features are.

Yes.

This stuff is not for beginners. Most people doing this type of work have a lot of experience.

[PensionNewbee]

nothing like being thrown to the sharks, huh?

The document design will be based on how the testing comes out - this is for 2003 (obviously)

So, I have to give the father and sons the same % of contribution because of attribution? I mean, if I maximize dad at 20%, the sons get 20% also?

So I would have the following classes:

Owner - 20%

Children of Owner - 20%

Other HCE -3%

All Other Employees - 5%

Is that about the size of it?

[AndyH]

No, the kids and dad need not get the same contribution level, and in fact should not get the same contribution level if Dad gets more than "all other employees".

Generally speaking, the kids should get no more than the "all other employees" group, but even to do that you will need to know all the ins and outs of "restructuring". You'd be better off excluding the kids from the plan unless you know how to test under 401(a)(4) on a benefits basis and contributions basis, and you know how to do both within one test. If you can do that, you would normally set the kids equal to the NHCEs; otherwise, exclude them from the plan or give them a very low contribution rate.

So, for example, put the kids in their own group and give them 1%. Then try cross testing and you have a chance of passing. You will have no chance if they get the same contribution as Dad.

[Blinky the 3-eyed Fish]

Andy, Dad could be 92 and the sons around 70. Then there would be a fine chance of passing.

Newbee, not to dispare your company in any way, but where is your supervisor and what sort of involvement will he/she have in the final say of this document being generated? Hopefully, you are not really being thrown to the wolves. Because if you are, I would look to a new company to work for before your reputation is tarnished while learning this business.

[AndyH]

Good point. I stand corrected.

But maybe not if NRA is 125, like social security normal retirement age might be after we finish up paying for Iraq.

[PensionNewbee]

Dad is 60, sons are 29 and 23. Plan passes all testing with 20% to owner, 3% to other HCEs and 5% to all other EEs.

It seems like a pretty common design, from what I've seen and read.

I'm not being thrown to the wolves, it was a momentary thing.

[AndyH]

Agreed, but once again, you may be able to give the kids 5% if you restructure the plan into component plans, test part on a contributions basis and part on a benefits basis. Not for newbees, however!

[PensionNewbee]

You're right about that, AndyH - this isn't for newbees. I have to walk before I can run - it's a pretty vanilla design as cross testing goes. Lucky for me that's pretty much what the client wants.

I do need to learn more about cross testing and restructuring - any suggestions?