Guest merlin Posted December 5, 2003 Posted December 5, 2003 I've been asked to prepare a profit sharing proposal for a small engineering firm. There is not enough of a difference in ages between the two partners and the rest of the employees to make crosstesting work across the board, but restructuring might help. I'm thinking of putting the younger partner in one component plan, and testing on allocations, and the older partner in the 2nd component plan and testing on benefits. But CP1 does not pass the RPT. Does this mean that I have to have a reasonable basis for differentiating one partner from the other in order to use the ABT for CP1 to pass 410b? The plan as a whole will pass the AB%T.
AndyH Posted December 5, 2003 Posted December 5, 2003 Yes, each component must pass coverage. If they don't each pass R/P, then they must pass the average benefits test, which includes the requirement that the eligibility be reasonable based on objective business criteria, not just for the HCEs, but for whoever else is included in each component. But why can't you pass R/P? How many HCEs and NHCEs do you have?
Guest merlin Posted December 5, 2003 Posted December 5, 2003 Andy, it's a small group: the 2 owners and 7 NHCEs. Of the NHCE there are 2 managers that they "want to take care of", so I was planning on giving them the same allocation % as the 2 HCEs, and testing on allocations. CP1 would be the younger HCE and the managers, which give me a ratio of 57.14%, thus the need for the abt. CP2 passes the rpt, and passes a4 on a benefits basis.
AndyH Posted December 5, 2003 Posted December 5, 2003 You'd need to include 2 NHCEs in one component with 1 HCE and the other 3 with the other HCE in the second component. Each component plan would pass ratio/percentage, one at 100% and the other at 120%. And one component would get the same % of pay and therefore that passes (a)(4) on a contributions basis. You just need to get the other to pass on a benefits basis. One HCE with the two youngest NHCEs, or even 3 should do it.
Mike Preston Posted December 5, 2003 Posted December 5, 2003 Andy, I think if you put numbers on it, you'll find that you don't need to include the additional NHCE's at the same percentage. They are needed specifically for 410(b), not for 401(a)(4).
AndyH Posted December 5, 2003 Posted December 5, 2003 Agreed, I was just trying to keep it simple to start with.
Guest merlin Posted December 6, 2003 Posted December 6, 2003 Andy, your component plans account for only 5 NHCes. Where are the other 2?
Guest merlin Posted December 8, 2003 Posted December 8, 2003 Nothing like a BenefitsLink discussion to cure tunnel vision. I was hanging myself up on the 410b vs. 401a4 issue as mentioned by Mike and clarified by could be.. Must have been the snowstorm. Thanks to all.
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now