Comp ratio test-HCE Top 20% limit

[Guest JackR]

I have a plan that excludes bonuses from compensation used to compute their profit sharing contribution. The plan limits their HCE's to the top 20% of the group. They fail comp ratio (barely), but if I were to pull the 6 people who are NHCE's due to the 20 %limit, into the HCE group for this test, it would pass. Would that be acceptable, or when "top 20" is being used for coverage and ADP, is it locked in for comp ratio as well?

[Jim Chad]

My understanding is that it is in the document so it is locked in. Does anyone know if this can be amended after the end of the Plan year?

[12AX7]

The plan document determines which HCEs may be subject to the top 20% election for the year. This determination is for all plan purposes that year.

[Tom Poje]

and before you simply change document for future years, if these 6 people are deferring at a high rate it would probably make the ADP test worse so you have to be careful.

what this means for the year in question is that you have to run a nonelective test based on total comp (or comp less all deferrals)

That does not force you into a 'cross-testing' because you can test on an allocation basis.

[cpc0506]

Amendment to change top paid group status must be adopted before the plan year ends.

[Mike Preston]

Be advised that failing the comp ratio "barely" may indeed mean that it satisfies 414(s). Go back and read the code and regs and you may be pleasantly surprised.

[Guest isg2013]

Let me branch off a little on this topic

I understand the basic concept of 414s comp ratio test.

My plan excludes B-OT-C, any of the 3 components. For 401k and 401m piece I can run my adp /acp test with full comp and if I pass --ok, I don't need to show a passing 414s comp ratio test (?).

If my plan is safe harbor and I don't need to run either the adp/acp test --does that require me to run the 414s comp ratio test?

On the 401a piece --if there is a profit sharing allocation, I need to run through 401a4 testing if I don't run a 414s comp ratio test or I fail it (?).

I know i could run on an allocation basis instead of accrual and impute disparity and should be ok.

Missing anything or incorrect on any of the above?

Thanks

[Tom Poje]

If you satisfy the comp test, that means you can run your nondiscrim test based on that definition of comp. but you can always run your test based on any definition that satisfies 414(s) (assuming your document isn't more restrictive than that.

if the plan is safe harbor, then YES you have to pass 414(s) - basically you don't get a free ride on the ADP/ACP test and be able to have a discriminatory definition of comp

[John Feldt ERPA CPC QPA]

And just remember, some allocations require total compensation, such as TH minimums or the 5% Gateway, if those are applicable to your plan.

[Guest isg2013]

Thanks