Allocation methods

[Guest Tesla]

I know that the method of allocation has to be defined, and I understand this to mean that basically you can't allocate money willy-nilly between different people.

I also understand there are a variety of ways that it can be defined, including a flat amount, a percentage of compensation, or employee classifications.

Can someone clarify whether there is a list of approved methods, or if it can really be anything that is "bona fide" and well defined?

Also, can the classification be something as specific as, say, a particular officer in a corporation?

[rcline46]

Review the rules under 'cross tested' plans, or what is called 'new comparability' plans.

[Guest Tesla]

Thanks, I've been wading into that. As far as I can tell, the options are not limited to a list.

I'm also curious whether any of the methods of testing look at account balances, and whether too much money is accumulating in the HCE accounts, notwithstanding that the rates of contribution or the EBARs come out ok.

I'm reading that for new comparability plans, you have to pass the initial gateway test which requires a certain level of contributions. I wonder how this would work with reallocations by the same method. If you passed the gateway test for the year, and later reallocate forfeitures by the same method, do you have to pass it again?

I'll keep reading, but any help is much appreciated!

[12AX7]

Gateway only needs to be satisfied once for the plan year taking into consideration all allocations. Do you have access to the ERISA Outline Book? The information you're looking for can be found there and will give you a great understanding through examples.

[david rigby]

Remember that the role of the Internal Revenue Code (and corresponding regulations) is to define boundaries (ie, minimums and maximums), not to define every piece of a puzzle or procedure. With limited exceptions, you will not find "approved methods" in the law.