Flexibility on Cross tested plan with separate rate groups for each HCE

[Guest rffahey]

I have a 3% safe harbor 401K / cross tested plan for a physician group.

There are 9 rate groups -- one for each physician PC ( each PC is a partner in the group) and then one other group for all other employees.

Last year one of the younger doctors decided to max out their profit sharing contribution. This drove up the rank and file costs quite high to pass testing.

The highest doctor got 11% of pay and the rank and file got 17% of pay.

Some of the physicians elected not to put anything in the profit sharing plan for themselves.

The administrator said there was no way around this.

Other TPA's have been saying that it could have been possible to test this on contributions as opposed to benefits. And if so then we could have limited the costs on the rank and file to 11% ( the highest contribution that any doctor received ).

Any thoughts or ideas would be appreciated !!!

[AndyH]

Yes, that comment about testing on a contributions basis makes sense.

If everybody got the same percent then you actually have a safe harbor allocation that doesn't even need to be tested.

But often in your situation you would ideally test part of the allocation on a benefits basis and part on a contributions basis, which is often called "component plan testing". You'll find some discussion of that if you want to search this board.

But there is no way you should have needed to give rank and file more than your HCEs. Your worst case scenario should be that the rank and file get slightly less than the youngest HCE, because you can inpute permitted disparity to make slightly less be treated as equal to.

[Blinky the 3-eyed Fish]

A 1.401(a)(4)-11(g) amendment could also have been done to help the results.

Somebody get that adminstrator's head on a platter.

[AndyH]

Hmm, I was thinking that the poster may have done the work, but upon re-read I guess not.

Maybe it was a crossed up tested plan, or maybe it was a plan simply tested by an imcompetent cross dresser.

[Guest rffahey]

Can Blinky expand a bit more for me since I am not a Code type person - just a pension salesman who depends on TPA's for the technical stuff !!

Many thanks !

[rcline46]

rffahey, what you have is the result of something being done that may be absolutely correct on a cross-tested basis, and may have been done exactly to the agreement you/client had with the service provider.

All they had to do was plug the numbers into some software and report the answers.

However, they obviously did not do the best job for your client. you must get a new provider ASAP. The current one has absolutely no idea what he/she is doing.

[Blinky the 3-eyed Fish]

rffahey, the "-11(g)" amendment I was referring to is simply an amendment to the plan that would allow the plan to pass nondiscrimination testing by giving accruals to one or more people. For example, if everyone was getting 5% of compensation, but the testing fails, an -11(g) amendment can be done to give one person, say 10% of compensation, or whatever is needed to pass the testing.

So, the basic theme of all of this is that there are many ways to skin a lizard. (I am in Arizona and all our cats withered and died in the heat this summer.) While many firms do cross-testing, as Andy said, many people are instead doing crossed-up testing. There is more knowledge than just pushing a button and accepting the results, so, if you aren't associated with these TPA's and care about your clients, follow rcline's advice and recommend to them to find a new TPA.