Guest jhilliard Posted January 19, 2004 Posted January 19, 2004 I have a client who sent their integrated PS allocation calculation to us for review. I have not had many plans in the past that utilized this method of allocation (or at least they didn't ask me to review it). Our compliance person is saying the allocation is wrong but wanted me to post a question to make sure. Would it be appropriate to allocate 3 percent as a safe harbor allocation and then allocate 7.028754 percent to comp over the $87000 level? I am being told the allocation would need to be more like: 3 percent for safe harbor, 5.7 percent (maximum integration level) and an additional 5.3 as a comp-to-comp allocation. The goal is to maximize the key personnel. Any help would be great!
R. Butler Posted January 19, 2004 Posted January 19, 2004 The formula doesn't look permissable to me. The integrated portion cannot exceed the base. The 3% safe harbor cannot be considered in imputing disparity. Thus, unless I don't understand your formula, you cannot have 5.7% on the excess wages & only 5.3% on the pro-rata. The document should be pretty clear on how you allocate the contribution. Most documents I have seen actually take you through the allocation Step by Step.
Guest jhilliard Posted January 19, 2004 Posted January 19, 2004 The question has taken a turn - I need something in writing that explains that you cannot exceed 5.7% of compensation above the TWB. I hope I am asking this correctly.
MGB Posted January 19, 2004 Posted January 19, 2004 How about Internal Revenue Code Section 401(l)(2), and/or the regulations associated with it. I am not sure off the top of my head where the reference to needing to ignore the 3% safe harbor is...probably a regulation under a different Code section such as 401(a)(4).
R. Butler Posted January 19, 2004 Posted January 19, 2004 IRS Reg. §1.401(l)-2(d) for the 5.7%. IRS Notice 98-52 Section VIII.B. for the exclusion of the 3% safe harbor. Now I'm assuming you trying to meet the permitted disparity safe harbor provisions of 401(l). Also, again I'd be surprised if the plan document is not very clear on this issue.
Tom Poje Posted January 20, 2004 Posted January 20, 2004 suppose ee makes 200,000 and wants 40,000 in ps to max out 5.7% (200,000 + 113000) = 17841 base%=excess % so now wants 22159 22159/ 200000 = 11.08% of which 3% is safe harbor so it looks like at least 8.08% additional unless there are deferrals. or maybe my brain is on the fritz, which it has been known to be.
Mike Preston Posted January 20, 2004 Posted January 20, 2004 I think maybe my brain is on the fritz. I admit to not understanding where your numbers are coming from!
KJohnson Posted January 20, 2004 Posted January 20, 2004 I think he maxed integration at $200,000 5.7% of Comp=$11,400 5.7% of Comp over TWB (for '03)=$6,441 Subtotal=$17,841 He then added the 3% safe Harbor=$6,000 Subtotal=$23,841 He then determined what was left for the 415 limit for '03 $40,000 - $23,841 =$16,159 left for the 415 limit. He then determined that as a percentage of comp $16,159/$200,000=8.08%
Mike Preston Posted January 20, 2004 Posted January 20, 2004 Ah, yes. The cloud is lifed. Sometimes I understand Wolverine. Sometimes I don't. ;-)
Tom Poje Posted January 21, 2004 Posted January 21, 2004 and sometimes I think I understand actuaries............. no, couldn't be.........
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