Design-based safe harbor allocation formula

[Belgarath]

A client has a rather unusual request as to the profit sharing allocation methodology. The client would like to to able to:

1. allocate in the same dollar amount per Hour of Service for each Participant;

OR

2. in the same ratio as each Participant's comp bears to the total of such comp of all Participants;

OR

3. a combination of both. With complete flexibility to mix/match, or choose between one or the other.

Although both methods 1 and 2 are, individually, design-based safe harbor allocation methods, I believe the flexibility to mix and match takes it out of design-based safe harbor status. Am I nuts, or am I correct? (technically, I suppose the answer to both could be yes...)

[Peter Gulia]

Why not just amend the plan's governing document each time the employer declares a contribution and decides how to allocate it?

[Jim Chad]

Each person in their own group would allow this. But it would not be safe harbor and would require testing.

[Belgarath]

Thanks, yes, I know that each person in own group would do the trick, and in fact this is what we proposed to employer. But they are adamant that they don't want that type of discretion to appear in the document - it has to do with employee communications, and an internal non-qualified bonus system, etc., etc., which I understand. So I just wanted to overcome my brain cramp and confirm that this would require general testing. Thanks for your input.

[ETA Consulting LLC]

I 'think' he would be allowed to do the greater of 1 & 2 and it still be safe harbor. There wouldn't be any flexibility as it would be the greater of two safe harbor formulas.

Good Luck!