Allocation Rates

[Guest Golden401k]

Background: 4 related employers on one non-stand document. Each employers profit sharing contribution goes only to employees employed by that entity.

In a situation where only one employer makes a 3% pro-rata profit sharing contribution, would I consider the other employers allocation rates at 0% and still need to rate group test/average benefit test or would the coverage test take care of this because they are not benefiting. Is the formula still deemed uniform? My initial thought is NO, and must perform 401(a)(4) testing.

[AndyH]

Assuming that you have a controlled group, and that the allocations are in accordance with the document (that sounds iffy right there), and you have one group getting the same percent and others getting nothing, then you have a difficult 410(b) coverage test, not a general test for nondiscrimination. The latter would be necessary if you had more than one actual allocation level, i.e. some get 1% some get 2%.

[Guest Golden401k]

It's the standard "Related Employers" language where you allocate only to directly employed Participants. I suppose in the event where I have multiple allocation rates, I could try restructuring the plan to avoid the general test. Granted it passes coverage and 401(a)(4) for each component.

[AndyH]

Exactly. Restructuring a 0% group and a 3% group is the same as coverage testing. If it passes coverage, it passes as a restructured safe harbor, if nothing else.

[Guest gsi miami]

andy

but if one co/div was getting 1% and the other was getting 5% we would need to show the contrib amounts pass non-discrim?

b/c 1% and 5% are diff amounts. aren't 0% and 5% diff amounts?

[AndyH]

I don't think so. 1.401(a)(4)-2(b)(2) defines a safe harbor plan with a uniform allocation as one that "allocates all amounts taken into account .....under an allocation formula that allocates to each employee the same percentage of plan year compensation, ......."

An "employee" under these regs is defined as an employee who benefits under the plan.

So the 0's are not employees because they are not benefiting. Those that are all get the uniform allocation.

Interesting excercise in IRSRegSpeak.

[Nate X]

If you can pass the ratio percentage test, then you do not need to cross-test the plan.

If you need to cross-test the plan, keep in mind that you’ll have to meet the gateway requirement.

Andy, what are you referring to when you say 1.401(a)(4)-2(b)(2)? Tres Reg? Tres. Reg. 1.401(a)-4 is Optional forms of benefit (before 1994).

[AndyH]

Treasury Reg.

http://www.taxalmanac.org/index.php/Treasu...28a%29%284%29-2