410(b) coverage

[Earl]

I have a 3 group plan, 1) owner, 2) Son, 3) All others

So 1 & 2 are HCEs. If son does not get a Profit Sharing contribution is the HCE ratio percentage 50% or 100%. There would be an elective declaration of $0 to his group for this year. He is not terminated or denied money by anything other than employer election.

My thought was 50%, but this case has me wondering.

http://www.investmentnews.com/apps/pbcs.dl...E/70323019/1037

Maybe it is 50% and he is still an active participant? (a combination of the two issues)

Thanks

Earl

[Belgarath]

Yes, this would normally be 50%, assuming no forfeitures, nothing unusual etc. See 1.410(b)(3), and 1.401(a)(4)-2©(2)(ii).

And yes, you are looking at two separate issues. The definition of "benefitting" for 410(b) and 401(a)(4) purposes is separate from the "active participant" rules for IRA deduction purposes.

P.S. there was just a thread on the "active participant" issue a day or two ago that you might find very helpful. Or you could just look at IRS Notice 87-16, but the thread will probably be quicker for your purposes.