DB Plan and SEP

[emmetttrudy]

A small business owner has a DB Plan that she set up back in 2005 with about 3 other NHCEs. Prior to the implementation of the DB Plan she had a SEP, which she stopped contributing to in 2005 and has not contributed to since 2004. The DB plan is now frozen but she would like to contribute to the SEP again as opposed to making a contribution to the DB Plan. Trying to figure out the testing implications for this. Wouldn't the SEP need to be tested for 401(a)(4) combined with the DB Plan?

[SoCalActuary]

A small business owner has a DB Plan that she set up back in 2005 with about 3 other NHCEs. Prior to the implementation of the DB Plan she had a SEP, which she stopped contributing to in 2005 and has not contributed to since 2004. The DB plan is now frozen but she would like to contribute to the SEP again as opposed to making a contribution to the DB Plan. Trying to figure out the testing implications for this. Wouldn't the SEP need to be tested for 401(a)(4) combined with the DB Plan?

What testing do you need?

The DB is frozen, so there is no increase in benefits to any HCE, meaning no top-heavy minimums nor a4 testing.

You will need to confirm that 401(a)(26) was met, but that should be no problem.

Of course, you missed the chance to sell a profit sharing plan with age-wgt, integration or general testing features.

The SEP requires essentially uniform allocations, including amounts to people who work less than 100 hours.

[emmetttrudy]

You're right I forgot since the DB is frozen there is no 401(a)(4) testing. I believe the owner is just looking for a tax break, in which case she would be better off just making a contribution to the DB plan (AFTAP around 90%) as opposed to the SEP, otherwise like you said she would be giving a uniform allocation to all employees in the SEP.

[emmetttrudy]

Can a DB Plan be cross-tested with a SEP?

[Blinky the 3-eyed Fish]

No.

[emmetttrudy]

No.

Can they be tested at all together?

[Blinky the 3-eyed Fish]

Tested for what? Aren't you asking the same question again?

[emmetttrudy]

Tested for what? Aren't you asking the same question again?

the general test

[Blinky the 3-eyed Fish]

What is cross-testing?

[emmetttrudy]

What is cross-testing?

Cross-testing is one way to satisfy 401(a)(4) but not the only way, correct?

[Blinky the 3-eyed Fish]

You got me there. But the same aggregation rules apply to (a)(4) no matter how you are satifying the testing, so no aggregation with the SEP is allowed when testing the DB plan. No way, no how, no sir.

As an aside, I believe the aggregation rules are in the 410(b) regs and of course (a)(4) and 410(b) must be in lock step.

[Andy the Actuary]

remain in a frozen state like Ted Williams.

The Spendid Icicle?