New comp with one key waiving comp

[pbarrett]

We have a new comp plan with 2 highly paid doctors. There are 6 eligible non-highly comp participants.

They have not contributed the last two year. We restated their doc and switched it to a new comp effective 1/1/03. The doc states comp can be waived. There are two groups. 1.) Dr's 2.) all others. We have a letter from them dated in 12/02 that they want to optimize the contribution. I'm confused here. Can I put the two doctors (one with a -0- comp, he worked 1000 hours) in group 1? In otherwords, one Dr. would be in with $1.00 (or -0-) salary and the other would be in with $200,000. Is that ok assuming the doc permits it?

Any suggestions would be appreciated.

P

[Tom Poje]

it is not a matter of 'can I put the 2 doctors in one group' its that you have to. that is what the document says. If you give one doctor 20% of pay, you have to give the other doctor 20% of pay, even if he only takes $1. You can't give him zippo.

Now, if that doctor takes 0 comp, what do you do? There is nothing in the regs that says how to handle that situation. At ASPA conferences the IRS has suggested treating those people as entirely excluded from all testing.

[Blinky the 3-eyed Fish]

While the idea of an HCE waiving compensation is not allowed for DB funding, I am not sure of the permissibility for DC plans, so I will reserve comment on its allowability. But, why rely on that if you don't have to? It only serves to hurt your testing versus amending the doctor in another rate group.

As the plan currently reads, either the doctor will waive all compensation for plan purposes and will not be in the test or he will take some compensation and get a 20% accrual. If he is a young HCE, I would hate to see a 20 cent allocation on his $1 compensation cause the testing to fail. Being in his own rate group and considering full compensation will allow him to be in the test with a zero or a very low EBAR.

So, if there is a last day requirement in the plan to receive a PS allocation, consider amending it to put the doc in his own rate group. If no last day, then consider it for next year before the folks work 1,000 hours.

[Mike Preston]

Even if the comp is waived for allocation purposes, would you also treat such waived comp as not existing for 401(a)(4) purposes?

[AndyH]

Strange conversation, or at least is seems to me.

"The doc states comp can be waived."

Is this a misstatement? What kind of a pension document affects compensation? Did you mean to say that a contribution can be waived? And if so, please elaborate on what the specifics of this are.