2006 Limits

[Jilliandiz]

125 Plan established.

7 nonhighly employees who participate

1 highly who participants.

Is there a limit the highly can put away, based on discrimination testing, wage limits, etc.?

[oriecat]

I have a spreadsheet that I get from our TPA to help with the non discrimination testing. Maybe you could plug the figures into there and see what it comes up with... PM me with your email address if you would like it a copy. I tried to attach it but it says I can't attach xls files.

[Jilliandiz]

Thanks a ton.

Here is my email...jilliandiz@hotmail.com

[oriecat]

Ok, I just sent it.

[jmor99]

I'm going to make a big assumption here and assume that you DO NOT have day care reimbursement as a benefit. If not, you might be OK. Here's the 25% formula, where N=non-key and K=key:

K -------= 25% or less.

N+K

Or "K over N+K = 25% or less". Total up the estimated pre-tax deductions (annualized) made by the Key employee and place in the formula. Total up all the estimated pre-tax deductions (annualized) made by the other employees and place in the formula (where N is), then do the math. If it fails, that doesn't mean he can't participate. You then do a "backdown" to find what level he CAN participate at. In other words, K minus some dollar amount, over N+K minus some dollar amount, = 25% or less. In place of K, you would put K-x, and solve for x. To clarify, let's say the total annual contribution by K is $1,000, and the test is failed. After doing the backdown, you may find that K is able to pre-tax $753 and pass the test at 25% (he can post-tax the other $247). Here's a possible catch: You run the test at the first of the year, and pass right at 25%. Then one of the non-key employees changes his election during mid-year to a lower or 00.00 amount due to a status change. Now you're out of compliance again. On a small group like this, you need to run the test everytime a non-key employee changes to a lower election, IF you're running close to the 25% limit. When that happens, you also change the Key employees pre-tax election (using the backdown formula) to get back in compliance. Test failure IS a qualifying event for the Key employee.