Limitations On Allocation Rates

[austin3515]

Plan has 3 NHCE's:

1 Is Otherwise excludable and gets only Safe Harbor 3%

1 is a terminated non-highly getting only the gwm

1 is a full-time active NHCE getting enough PS to pass testing.

How do I apply the limitaiton on the number of allocation groups? If 3 NHCE's the limit is 2; if 2 NHCE's, the limit is 1 rate. But should providing the GWM be counted as an allocation rate? Should the Otherwise Excludable participant (whom my document permits disaggregating for testing) be considered an allocation rate?

[Jim Chad]

FWIW, I think you have 3 NHCE's and 2 allocation rates.

[John Feldt ERPA CPC QPA]

Why is the plan in a prototype document?! Rhetorical question. I agree with Jim that you have 2 rate groups.

[austin3515]

Which one is excluded? I'm giving 3 different percentages, but you haven't told me which doesn't count towards the three, nor why?

[John Feldt ERPA CPC QPA]

Doesn't the limitation on the number of rate groups apply to the discretionary employer nonelective allocation (the profit sharing allocation)? Check that with the document.

You have 1 group getting nothing (they are both getting a required allocation of safe harbor and one is getting a required allocation of a gateway minimum)

You have 1 group getting enough profit sharing to pass testing (I assume that more than the minimum GW, otherwise you really just have one group)

That's just 2 groups.

I certainly could be wrong about this. Since my plans are all in Volume Submitter documents, these silly restrictions do not apply to any of our plans. Thus I did not spend much time researching the answer provided above.

[austin3515]

"Why is the plan in a prototype document?! Rhetorical question"

The virtues of VS were not made clear to me until the ship had sailed.

[austin3515]

We're using the Corbel 401k prototype. I submitted this question to them:

Section 4.3(b)(3) includes the limitations on allocation rates.

Section 4.3(b)(4) (regarding the Gateway Minimum) begins with the following sentence: “The Employer may make an additional discretionary Employer Contribution as set forth below.”

Section 4.3(f) (regarding top-heavy minimum contributions) begins with the following phrase: “Notwithstanding the foregoing…” which in my opinion could be interpreted to mean “even if you end up with more allocation rates than are permitted by 4.3(b)(3)”

In my opinion, both suggest that it is the discretionary contributions that are subject to the limitations, while the mandatory allocations that are required are determined AFTER complying with those limitations.

What say you?

[John Feldt ERPA CPC QPA]

That's what I would conclude, but I'll be interested to hear what Mr. Richter, Mr. Watson, or Mr. Forbes have to say.

[Tom Poje]

so lets suppose a plan failed coverage and you had to correct by providing an additional allocation to someone.

would you argue you have created a new allocation group. oh crap, the document won't let me do that?

I would hold you allocated a contribution to someone of x%. if he gets bumped up to the gateway, well, thats the regulations - that is not your choosing.

by the way, at the ASPPA conference a similar argument was used for safe harbor plans - you could change things to pass coverage/nondicrim testing because you simply have to to be in compliance.

[austin3515]

In other words, Tom agrees with my analysis (Tom, please correct me if I am mistaken)...