Kevin C Posted April 13, 2012 Posted April 13, 2012 It's Friday afternoon and this one is giving me a headache. Two 401(k) plans of the same employer need to be aggregated to pass 410(b). Both plans have identical integrated PS allocation formulas. For 2011, the only PS contributions were small amounts resulting from the client depositing slightly more than the SH match during the year. The % PS allocation is slightly higher in one plan than in the other. Is general testing required? B,R,F?
ETA Consulting LLC Posted April 13, 2012 Posted April 13, 2012 Yes, to the extent of a higher allocation to the one group. When you aggregate the plans, the participants in the one plan are "not" benefiting at the slightly higher formula. While they are benefiting, in that they all received a Profit Sharing, doesn't show that each formula is non-discriminatory. Good Luck! CPC, QPA, QKA, TGPC, ERPA
Tom Poje Posted April 16, 2012 Posted April 16, 2012 I don't think its a matter of BRF, but you would have to run some type of nondiscrim test since you are aggregating the plans. you indicated only one plan had a small amount of profit sharing, so since not all received the nonelective contribution I'd say not all are benefitting under the nonelective test.
Kevin C Posted April 16, 2012 Author Posted April 16, 2012 Thanks. One plan ended up with a PS allocation of .07% of comp integrated and the other .06%.
Mike Preston Posted April 16, 2012 Posted April 16, 2012 If the aggregated plans pass the ABT that may be all you need to show that each plan satisfies 410(b). If that doesn't work you might be able to use the component plan rules to move a few NHCE's around so that each component plan satisfies 410(b) and is also a safe harbor formula. From what you have described, I *think* you will need to move some folks from the .07 plan to the .06 plan. If doing that allows you to pass 410(b) then you are all set. The .07 folks remaining have a safe-harbor formula. The .06 folks (along with a few .07 folks) all get a safe-harbor .06 allocation. Then, finally, in addition you have a few NHCE's that get a little more (that is a safe-harbor also). This doesn't work if you have to move folks from the .06 to the .07.
Tom Poje Posted April 16, 2012 Posted April 16, 2012 hopefully these are not plans that are top heavy and were using safe harbor match to avoid that. otherwise by having even a minimal profit sharing you blew things.
Kevin C Posted April 16, 2012 Author Posted April 16, 2012 No, they are not top heavy. We ran ABT this morning and unfortunately, they fail. I'll take a look at component testing. All but one of the HCE's are in the .06% plan. It looks like another $800 to the .06% plan will equalize the contributions between the two plans.
Mike Preston Posted April 16, 2012 Posted April 16, 2012 "All but one of the HCE's are in the .06% plan." Then component plans will work. No extra contribution required.
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