plan with only HCEs

[Guest mrsactuary]

a plan with only hces with profit sharing and cash balance plan passes 401(a)(4) and 410(b) by default right> no testing involved except for the 25% combined limit/6%dc limit.

agree?

[Andy the Actuary]

a plan with only hces with profit sharing and cash balance plan passes 401(a)(4) and 410(b) by default right> no testing involved except for the 25% combined limit/6%dc limit.

agree?

If not subject to PBGC and you change "plan" to "employer," then concur, though it is believed by some that the government routinely discrimates against HCEs.

[Mike Preston]

What does PBGC have to do with it?

[SoCalActuary]

31% - non-pbgc plans deduction limit

otherwise, testing & pbgc coverage are not related in answering this question.

[Guest TooMuchFreeTime]

Andy's plan/employer change may not be entirely clear. His point is that if you have an employer with only HCEs, you can cover them without worrying about non-discrimination/coverage. If, however, the employer has a large population of NHCEs and you create a plan that covers only HCEs, you've got yourself a situation that just screams coverage problems.

Before you reach a conclusion, be sure to consider who the employer is, in this case. Have you looked at controlled group issues? (See IRC Section 1563 as referenced by 414(b))

I always like to think of the compliance rules in terms of evil intent... If you're simply paying all of your employees large amounts of money such that they all qualify as HCEs, does that make you evil? Surely not! You're just generous! You're probably ok, here. However, if you move all of your HCEs to a newly-created subsidiary so you can offer a plan to those employees while excluding all the schlubs you left in the original company, you're an evil bastard, and there's probably a rule to stop you. In this case, it's the controlled group rules of 414(b) coupled with 410(b)'s coverage rules.

If, however, you find yourself in an odd position with 1-2 NHCEs tossed in (I use the example of the research lab that employs 25 PhDs and a janitor), you may be in trouble. Instead, you may take advantage of an alternate definition of HCE which is based on a percentage cutoff (80/20) rather than a dollar amount. Note, however, that this election must be spelled out in your plan document, and you can't boucne back and forth between the two HCE definitions willy-nilly.

Hope this helps.

[Mike Preston]

Re: PBGC...if we are talking about 2008 or later, sure. But what if the plan being tested is a 2007 year? Stuck with 31%, aren't we?