Individual Rate Groups and revised testing

[buckaroo]

With the approval of our new EGTRRA proto-type document, we are now offering the NEw Comp allocation (and its associated testing) as part of our standard services. The proto-type allows for two different allocation possibilities: 1) HCes vs. NHCEs and 2) Everyone in their own rate group. (This is directly from the LRM.)

My issue is as follows. Client is a doctor's office and all participants are in their own rate group (per the document). There are 10 physicians and 50 other employees. Lets say that all 10 are HCEs and 5 of the 50 others are HCEs as well. The remaining 45 are NHCEs. The client says max out partners and give 5% to everyone else. The plan fails. The client wants everyone else to get at least 5% (including the 5 HCEs who are not physicians). The have asked me to provide solutions to allow them to pass. AS always, they want the cheapest solutions possible (keeping in mind the max alloc rates under the prototype plan rules).

My question is: The possible solutions are endless. I can try any number of things to make this work, but I don't know where to stop. Do I simply come up with a couple of solutions. Do I ask the client for what they want done in more detail? If I do present Ideas and the client wants to "tweek" them, how far do we go? How are others handling this situation?

Thanks in advance

[Jim Chad]

First, I hope you are billing by the hour. My fee schedule includes 2 allocation scenarios and I charge by the hour after that. You may want to mention something like this in any letter or fax.

How to attack this problem? FWIW I would start by giving as much as needed to the people with the lowest compensation. Also, if testing on an accrual basis, I would look at giving more to the youngest.

Keep in mind gateway and 415.

Good Fortune!

[Mike Preston]

I have a series of questions that I typically ask. Here are some of them. You can make up your own once you understand where this is going:

1) Is there a group or are there multiple groups of NHCE's that you particularly want to benefit? If so, to what extent?

2) Is there a group or are there multiple groups of NHCE's that you particularly do NOT want to benefit? If so, how upset will you be if they turn out to be the least expensive individuals to increase?

3) To what extent must there be uniformity in the increase in order to avoid employee relations issues? The corrolary to this is how important is it to minimize the expense associated with passing the test?

4) Would you rather see an allocation to certain HCE's be less than originally intended than see increases to NHCE's? If so, who amongst the HCE's can we look at receiving less?

By the time you get the answers to these questions, you have a pretty good idea what path the client wants to follow. This really doesn't take much time, unless the client decides to take a lot of time answering these questions!

Also, make sure you have run all of the tests properly before even going to your client. The system really should be able to tell you whether you have passed or failed based on both the accrued to date tests and the annual tests without much additional work. Somebody looking at the output who is familiar with how these things work should be able to tell you whether a simple restructuring will likely pass, even if it really is failing now.

I will resist the temptation to delve into the psychology of firms that set up plans like this and do not have the internal expertise necessary to do a minimally comptent job. Then again, maybe I won't. I'm sure others will say it with much more emphasis.

[Blinky the 3-eyed Fish]

I usually give the client the cheapest solution and explain that if they rather, different people could receive the higher amounts. 8 of 10 times it ends right there.