Semi-annual allocations, last day required for each period

[John Feldt ERPA CPC QPA]

I posted this in the ESOP section, but perhaps the question leans more toward cross-testing?

http://benefitslink.com/boards/index.php?s...st&p=181920

An calendar year ESOP plan has 2 valuations per year, June 30 and December 31. The allocation condition is that you must be actively employed on the last day of the valuation period.

An employee who is active on June 30 gets a June 30 allocation, but if they quit December 15, they do not get an additional allocation for the 6-month period ending December 31.

The plan uses a definition of compensation that passes 414(s). The plan uses a pro-rata allocation method for each 6-month allocation period based on compensation paid during that 6-month period.

Assume all 3 are true:

• some employees get no allocations for the June 30 period because they left before June 30, and
  
• some other employees get allocations only for their compensation paid through June 30th because they left before the end of the plan year but after June 30, and
  
• some other employees get allocations based on full year pay because they were active on December 31.
  

Based on the assumptions listed, does this plan design require 401(a)(4) testing?

[AndyH]

I think so.

[RDY2RTR]

What if semi annual allocation periods were used for one group of employees and an annual allocation period was used for another group of employees? Is this allowed as long as the plan passes 401a4?

[QDROphile]

I thought you cannot cross-test ESOPs.

[ESOP Guy]

It has been a few years since I did 401(a)(4) testing for an ESOP, but if I recall you can do a General test. I BELIEVE you can NOT use any version of the test that converts the contribution into a benefit.

So simply put you can use rate groups but only on the current year's contribution.

( I am either right about that or I have a couple more years to worry about a former client's statue of limits running out!!)

[ESOP Guy]

RDY I am not sure what your question is.

The way I would do this test is clear my method with the plan attorney.

The method I would use is do a rate group test on everyone using their cont for the whole year and their compensation for the whole year.

If each rate group had at least the 70% ratio you are good to go.

I have never worked on a plan required more then rate group testing to pass.

[AndyH]

I thought you cannot cross-test ESOPs.

I don't think anybody is proposing cross testing. This seems doable testing using the General Test on a contributions basis.

[John Feldt ERPA CPC QPA]

Sorry, I only vaguely remember posting the original question. So, although the OP does say "cross-testing" it is really referring to the general test on a contributions basis, not on a benefits basis.