Individual Rate Group Clarification Question

[bzorc]

I have been reading the posts on cross-tested plans where the rate groups are individual HCE's (doctors, etc.) and "everybody else".

Question for clarification:

401(k) Profit Sharing plan is Top Heavy. Employer will provide 3% top-heavy contribution to all non-key (and NHCE) employees, no need to make it a safe-harbor contribution, as the ADP test passes easily on its own accord. No ACP test, no employer matching contribution.

To the cross test: There are 26 rate groups: The 25 "HCE's" and everybody else. Everybody else is getting the 3% Top-heavy minimum. The other 25 rate groups may receive a PS contribution up to 9%, in order to meet the gateway. The question is can an individual "rate group" elect to have nothing contributed on their behalf (for various reasons, such as termination or retirement). Obviously this would have a great influence on the discrimination testing in favor of the other rate groups. If this is allowable, does the employer need a written election from the non-participating rate group? Can the 0% for 2003 rate group go back and elect 9% for 2004, if desired (and subject to testing, of course), or is the "opt-out" for 2003 considered permanent (such as an irrevocable opt-out for an employee initially eligible for participation in a qualifed plan)?

Hopefully this isn't too confusing. Thanks for any responses.

[Blinky the 3-eyed Fish]

It's not the rate group that's electing to receive x%, it's the employer that is electing to contribute x% to the rate group. The percentages can change from year to year. There is the deemed CODA argument which has been discussed on these message boards, but it doesn't seem to hold much water at this time.

P.S. Andy and Tom, I win!

[Tom Poje]

it is unclear from your note what the document says.

If the document has 26 classes (1 each for each HCE and the last class being all others) and each class definition says the allocation is comp to comp,and a contribution is made to each class, then you need do nothing more. one or more classes could get a zero allocation.

[AndyH]

The situation you are describing is very problematic and is not prudent. If an HCE can elect to receive a contribution or not, that is not much different than a cash or deferred arrangement calling into relevance the rules under Section 401(k) to start with, and only covering only HCEs which is another no no. So you've got all kinds of issues like ADP testing, benefits, rights and features, 410(b), etc.

Can you do it? Yes, sure, but you would be in violation (arguably) of many rules.

p.s. Blinky, that was pretty amazing. Almost a three way tie. And I'm willing to bet that Tom's taken typing classes within the last two years. Not as many typos and much quicker! Must be all that publishing.