Can I impute disparity at the $40,000 level?

[Jim Chad]

Plan doc has each person in own his category. This year cross testing won't work. Owner's comp is around $160,000 and the employees are around $35,000. When testing on an allocation basis, can I impute disparity at the $40,000 level instead of the taxable wage base. In other words can I get the same result as if I had no categories and just did a simple integrated calculation.

[ETA Consulting LLC]

Plan doc has each person in own his category. This year cross testing won't work. Owner's comp is around $160,000 and the employees are around $35,000. When testing on an allocation basis, can I impute disparity at the $40,000 level instead of the taxable wage base. In other words can I get the same result as if I had no categories and just did a simple integrated calculation.

That is a good question. Each person being in their own class would appear to satisfy the definite determinable formula when an otherwise uniform allocation is made across all participants. Typically, this provides for a straight coverage ratio test with everyone being considered in one rate group (since it is a uniform allocation formula).

But, when you actually test contributions to a plan on a contribution basis and impute disparity, you may arrive at a different result since the test is perform on compensation with respect to the Taxable Wage Base and not the integration level in the plan (at least from what I remember). So, I am not sure if your approach would actually pass the test; or if you're solely relying on the fact that the entire formula was uniform (regardless of the language in the plan placing each participant in their own allocation class).

So, I don't know. Barring some requirement that a uniform allocation formula actually be written that way in a plan in order to be considered a uniform formula under the permitted disparity rules, it would appear as if testing may actually be required.

Good Luck!

[Bird]

I say no. You either have an integrated formula with the safe harbor integration levels, or you don't, and test using the actual wage base.