Key opting out of plan

[pbarrett]

We are taking over a new comp plan for period ending 12/31/02. Two Dr.'s each made well over $200,000 and each own 50% of the corporation. One Dr. has waived out of the plan.

There are two groups in the plan. 1.) Keys 2.) All others

When I run the tests and compute the allocations, do I count the one dr.'s comp that waived out of the plan at all? Do I put him in Group 1 with a -0- contribution? (Seems discriminatory). For 410B would I include him in the count?

Help.

[Tom Poje]

once someone has met eligibility they are included in coverage (unless of course they are a non benefitting terminee with < 500 hours.)

If they have elected out (one time irrevocable) they are treated as includable and not benefitting.

for deduction purposes you would not be able to include the compensation from the one Dr. since he received nothing.

This would not be much different than setting up a class plan as

1. Dr A

2. Dr. B (gets nothing)

3. all others

keys excluded from top heavy minimums.

[Dougsbpc]

Tom

Agree with everything you said, but are you sure compensation cannot be counted for deduction purposes for an employee who is excluded from participation?

Although I do not have it in front of me, seems like we researched this some years ago and found that for 404 purposes only, an eligible employee (whether or not excluded) is considered to have benefited from the plan.

Years ago, we purposely designed plans to benefit key employees who did not wish to participate. We established a seperate class and gave them $100 per year just so we could count their comp. However, I believe we found that we need not provide any allocation to consider their comp for deduction purposes.

[Blinky the 3-eyed Fish]

Doug, Tom is correct. Perhaps in your situation you had a 401(k) plan. Thus each eligible participant would be benefiting for purposes of the maximum deductible limit without needing to defer or receive an employer contribution.

[Tom Poje]

If the plan is a 401(k), or I guess for that matter, allowed after tax contributions, then an employee who could havemade deferrals is considered benefitting, whether they actually made them or not. Maybe that was the scenario you came across.

But if they absolutely can't get anything, then you can't count their comp.