Class-based Alloc vs. Cross Testing

[AlbanyConsultant]

I'm taking over a plan for a new client, and the prior TPA said that the plan has a class-based allocation, but they make monthly deposits and don't require cross testing.

This is new to me. I would have thought that you'd have to test each deposit. The goal of the class-based allocation is to give a standard allocation but only to certain groups of people; is it because the allocation is standard (but it isn't) that we don't have to actually cross-test? Or could I have just heard him wrong? Thanks.

[ETA Consulting LLC]

I'm taking over a plan for a new client, and the prior TPA said that the plan has a class-based allocation, but they make monthly deposits and don't require cross testing.

I would recommend looking at the document and comparing to the operation. Then, ask the TPA what they did, if necessary.

This is new to me. I would have thought that you'd have to test each deposit. The goal of the class-based allocation is to give a standard allocation but only to certain groups of people; is it because the allocation is standard (but it isn't) that we don't have to actually cross-test? Or could I have just heard him wrong? Thanks.

You can have various classes, but if you give each class the same rate, then you can run a single 410(b) test on a contribution basis. Look at it like this:

A rate group is merely each HCE and all employees at or above the rate the HCE received. There is nothing that requires that "rate" to be cross-tested. It can be an allocation rate (which effectively puts everyone who received a contribution into a single rate group) requiring only a single 410(b) test. Given this, don't look at the way in with contributions are explained as the method to determine how they will be tested.

Good Luck!

[ESOP Guy]

I don't see any reason you have to test each deposit. It seems to me you could just test the sum of the contributions at the end of the year.