The testing part of cross testing !

[Guest rffahey]

I have a 3% safe harbor cross tested 401k plan. If there are no profit sharing contributions the keys can do the 13,000 deferrals w/ no questions.

However i get confused when there is going to be a profit sharing ( cross tested )

allocation in a given year.

Why does the safe harbor ( 13,000 deferrals plus 3% safe harbor employer contribution ) have to be brought into the mix for testing the cross tested piece?

This seems as though it should stand on its own.

Is there any website or resource out there that explains in a page or 2 what the exact tests there are in these plans that I could use to perhaps explain to a CPA ?

Needless to say I am not an administrator - I just sell these plans ( and get surprised every day by what I don't know after 20 years !! ).

[AndyH]

The IRS' final regulations under Section 401(a)(4)-(8) of the Internal Revenue Code (Cross Testing) which were published in the Federal Register on 6/29/2001 gives a decent summary of the rules. And it is authoritative.

And to answer your question, you don't need to test a safe harbor nonelective contribution. But it is considered an employer "non-elective" contribution so that if a profit sharing contribution is made which is being cross tested, you would include the SHNEC because it is of the same money type being tested.

[Mike Preston]

Although you would not impute permitted disparity on the SHNEC when performing the general test.

[AndyH]

Now, Mike, we need you to get off this thread and onto the FAS#87 Discount Rate thread and tell us what rate auditors are going to permit. Or tell us about the results of your modeling analyses are so we can run the numbers once, be done, and refer any auditor questions to you!

[Mike Preston]

LOL. This is a pretty hot topic, that's for sure. I have nothing to add to the discussion, though, that hasn't already been said. If I bump into more, I'll post.