Component Plan

[MLML]

Hello,

10 HCE - 2 of them are receiving zero

20 NHCE - all of them are receiving 5%

Can I divide into two component plans as following?

Plan 1: 2 (zero allocation) out of 10 HCE, and 19 NHCE

Plan 2: 8 of 10 HCE, and 1 NHCE with the EBAR that's higher than any HCE

Does each component Plan have to have at least one HCE and one NHCE?

Thanks.

[Tom Poje]

component rules are found as 'Plan restructuring' under 1.401(a)(4)-9©

in particular, (2) says that the ER may select the group of employees used for this purpose in any manner and the composition may be changed from plan year to plan year. every employee must be included in one and only one component plan under the same plan for the plan year.

so you can put people into whatever groups you want

hello and welcome to the board.

[rcline46]

Even if you do component plan testing, each component must pass Non-discrimination rules. How do you pass with .05/.5 or 10% ratio in plan 2? need at least 40.5% and the plan must pass ABPT.

[AndyH]

If your component groups are chosen at will without any "reasonable classification", then each component must have a ratio percentage of 70% or more because the NCT is not satisfied and therefore the Average Benefits Test is not available.

[rcline46]

Then the OP plan REALLY wont work with a 10% ratio!

[Blinky the 3-eyed Fish]

The ratio is 1/20 / 8/10 = 6.25%, even worse.

MLML, if you post the contributions as a percentage of compensation and each person's EBAR, you might receive some specific help if it's possible to use component plans to pass.