Cross testing

[Guest Mmyrold]

I do not have much experience in cross testing and have been reading these forums which have made me more confused about what I'm doing. Of course I want to make sure I'm doing things correctly but I have a plan that is not a great candidate but I'm trying to do the most I can with it. The plan is a safe harbor 401(k) and the dentist (owner) is only 35 but would like to contribute the maximum. He has a couple employees who really have no interest in contributing and are all in their 20's.

I thought he could do a safe harbor match so that he could pass the ADP/ACP test and then contribute a profit sharing contribution in order to maximize. I use datair and allocated a percentage of 11% of compensation as a profit sharing to the NHCE in order for the gateway and the 401a4 to pass but the average benefit % shows failed. I'm assuming since the 401a4 passed as a plan it doesn't matter if the average benefit percentage part failed but I'm not completly sure and I don't feel comfortable relying on the software.

Also, regarding the safe harbor match, if none of the NHCE defer then no safe harbor match is contributed so does that mean the profit sharing contribution of 11% makes up for it!

Please help as I have a tax planning meeting tomorrow with my client.

Thanks, MM

[Jim Chad]

The 11% will satisfy gateway and top heavy, Probably.

How old are the NHCE's?

Maybe you want to amend to a triple stacked match for next year.

[Guest Mmyrold]

The employees are all in their 20's. What's a triple stacked match and why would this help?

[Lou S.]

If the plan as whole is failing the avergae benefits test, how are you passing 401(a)(4)?

My understand was if you failed the ABT you are dead in the water on cross testing and you need to either rasise benefits for some/all NHCEs or reduce benefits for some/all HCEs to pass if you are corss testing. Am I missing something?

[Bird]

You don't need to pass the ABT to use cross testing, as long as each rate group (you only have one rate group) is over 70%. If no one else contributes, I can see how the ABT would fail, but fortunately it doesn't matter. It sounds like you're probably on the right track...but you could probably do a 4% discretionary match on top of the SH before figuring out the PS to max the owner.