Group Allocations?

[Jilliandiz]

Ok, I have a cross-tested profit sharing plan. Group 1 is shareholders and their spouses. Group 2 are HCE's not in Group 1, and Group 3 are all other participants. In Group 1, the goal is to maximize the 2 employees at $40,000. However employee #1 has $200,000 in comp. and employee #2 has $160,000 in comp. Don't they both have to receive the same percentage of allocation, even though that does not get employee #2 to maximize at $40,000???? I cannot have them both receive $40,000 right?

Employee #1 = $200,000 x 20% = 40,000

Employee #1 = $160,000 x 20% = 32,000

Isn't that what they should receive? I can't give employee #2 $40,000 b/c it would violate the same percentage allocation right?

Thanks.

[Blinky the 3-eyed Fish]

How does your document read? Whether it is everyone receives the same percentage of compensation in the group or more likely that the contribution for the group is allocated in the ratio that compensation of the individual is to the total compensation of the group. Either way, you also have controlling 415 language in your document. So, you can designate $X for the group and allocate it as the document reads. If X is high enough, the higher paid owner's allocation would otherwise exceed the 415 limit, and then should be redistributed to the other members of the group.

In other words, it is possible as long as your document allows for this.

[AndyH]

Blinky, I happen to agree with you but there are some who feel that the "redistributing" of the 415 excess is not allowed. I do not share this view, but I thought I'd throw it out there in case anyone wishes to comment. I do not even recall what the legal argument was but there was one that was advocated by someone who's opinion I respect.

And if I recall correctly this subject was touched upon by Sal Tripodi in a package he put together in 2001 or early 2002 with sample cross tested plan language. He basically said that the plan should state how to address such excess.

[Tom Poje]

I would add the following reminder about

the group 'shareholders and spouses'.

Be very careful about such titles.

By attribution a spouse is a shareholder. So are kids.

Unless you define shareholder as someone owning stock directly, not by attribution you open yourself up for possible future problems.