New Comp and Aggregation

[wsp]

I've got a client that is operating a simple plan that has 90% participation rate. Assuming similar participation in SH plan so choosing 3% NEC. They are looking at ways to better benefit a couple of their sales employees. Using the current scenario they are limited to about 15% and 12.5% in p/s contributions under a new comp plan. Can I put them under their own plan and test them separately?

Plan 1

2 HCE's 0 NHCE's

Plan 2

4 HCE's 18 NHCE's

In order to pass 401(a)(4) as a whole entity I had to reduce the 2 HCE's to 15 and 12 1/2% respectively. Simply not enough young NHCE's employed by the company. As their comp is in the 130k range they are about 7k each from maximizing.

Both plans would have same eligibility provisions, vesting provisions, safe harbor status, investment options, and distribution options. Only difference is that plan 1 would be new comp and plan 2 would have discretionary p/s. Eventually both plans will use new comp but as I said, not enough young NHCE's. 5 of 6 HCE's are age 37 or 38.

Please tell me if I'm off base here. Let me know if you need more information....

[Archimage]

So why do you need two plans? It sounds like you can accomplish what you want in one plan.

[Mike Preston]

A second plan is a common planning technique. In this way, all NHCE's are provided with an SPD that shows the formula allocation and the two HCE's are the only ones to see, hear or smell the plan that provides them with the top-up benefits. In some organizations, this is the only way to make such an allocation method "fly".

My guess is that if you use accrued to date testing you can get substantially more in for the 2 HCE's.

[Jim Norman]

Using the current scenario they are limited to about 15% and 12.5% in p/s contributions under a new comp plan. Can I put them under their own plan and test them separately?

Plan 1

2 HCE's 0 NHCE's

Plan 2

4 HCE's 18 NHCE's

You can put them in their own plan, but if you test Plan 1 separately, it will fail coverage. To pass coverage Plan 1 will have to be aggregated with Plan 2. Since they are aggregated for 410, you test them together for 401(a)(4). So you are right back to where you started with 1 plan.