new comp - each participant in their own group

[Chippy]

Does anyone know of any articles that describes how the individual groups should be chosen. I'm searching for an article to share with a client.

The document states "the amount allocated to one group need not bear any relationship to amounts allocated to any other group."

I was always told that even when the document was written for individual groups, that the participants should still be "grouped", Ie: secretaries, clerks, accounting and so on.

Is there anything written anywhere that I can share. I tried the treas. regs, but I really couldn't find anything pertaining to the grouping the employees.

[Bird]

Your topic title is "...each participant in their own group." If that's what the plan says, then that is what it means - each group is effectively defined by the participant's name. No further distinction is necessary. If you're being thorough, after the end of the year you prepare a memorandum from the Plan Administrator to the Trustee dictating who gets what.

[Tom Poje]

the famous "I was always told" syndrome

even when the plan has everyone in their own group the reason why you might 'group' them is note comparing that might go on.

so hard working Chippy sees he has received a 5% contribution. he tells his somewhat lazy co-worker (the guy who comes in 15 minutes late to work half the time and leaves 15 minutes early to make up for it), only to find out the co-worker received 7%..... so to prevent problems within the rank and file it is generally recommended to put people in groups (at least at the allocation level)

for purposes of coverage the 'reasonable classification test' fails if you have "an enumeration of employees by name or specific criteria that has substantially the same effect as if by name"

so, for example, 40% NHCE don't receive the nonelective. you fail ratio % and you can't rely on the avg ben test (for coverage)

I think some people are of the opinion "even though the plan says each in his own class" I really did it by group so I am ok, but sorry, the document still has things, for all intents and purposes, by name.

now, how often will that actually happen to fail coverage? unknown.

[Chippy]

Are there any articles out there to help explain this?

[Tom Poje]

I'm not aware of anything in particular.
if you rely on document language here is a sample from FT William
(If it wasn't possible then I guess all of their plans for the past many years would be bad and the IRS would have said so)

if item g is selected, it says each person in own group, and the contribution to that group has no relation to any other group. so you could give one person 8% another 6% another 5% etc.
if item f is selected then you fill in the actual group names as the sample indicates.
the biggest caveat being that it is supposed to be clear which group an employee is in. e.g senior engineering vs junior engineering
when doing the allocation you can't simply say last year Bob was in Senior engineering, but this year he is Junior engineering and, oh by the way the senior group gets 8% every year and the junior group gets 6%
that just plain smells bad.


f. [ ] New Comparability - Defined Groups. See D.21.
g. [ X ] New Comparability - One Group per Participant. In an amount designated by the Company to be allocated to each group. For purposes of this D.18g, there shall be one group created for each Participant eligible to receive allocations of Profit Sharing Contributions. The contribution shall be allocated to each group in a manner determined by the Company. The amount allocated to one group need not bear any relationship to amounts allocated to any other group. The Company shall notify the Plan Administrator and/or the Trustee in writing of the amount of contributions allocated to each group.


21. Profit Sharing - New Comparability
New Comparability - Defined Groups. If D.18f is selected, the Company's Profit Sharing Contribution shall be allocated to eligible Participants who have met the requirements of B.17 through B.20 and D.12 through D.15 in an amount designated by the Company to be allocated to each group described in D.21. The contribution for a group shall then be further allocated to the members of such group who are eligible to receive allocations of Profit Sharing Contributions in the method as specified in D.21 for such group. The amount allocated to one group need not bear any relationship to amounts allocated to any other group. In the event that an eligible Participant is included in more than one group, the Participant's share of the contribution allocated to each group will be based upon either the amount of service or the Compensation for the part of the year the Participant was in the group.
The groups and allocations shall be determined as follows:
a. Group One: Executives/Owners An amount equal to:
i. [ X ] A percentage of Compensation
ii. [ ] A fixed dollar amount
iii. [ ] the greater i. or ii.
b. Group Two: Senior Management An amount equal to:
i. [ X ] A percentage of Compensation
ii. [ ] A fixed dollar amount
iii. [ ] the greater i. or ii.
c. Group Three: Senior Engineering An amount equal to:
i. [ X ] A percentage of Compensation
ii. [ ] A fixed dollar amount
iii. [ ] the greater i. or ii.
d. Group Four: Junior Engineering An amount equal to:
i. [ X ] A percentage of Compensation
ii. [ ] A fixed dollar amount
iii. [ ] the greater i. or ii.
e. Group Five: Customer Service/Support Staff An amount equal to:
i. [ X ] A percentage of Compensation
ii. [ ] A fixed dollar amount
iii. [ ] the greater i. or ii.
NOTE: D.21 applies if "New Comparability - Defined Groups" (D.18f) is selected.
NOTE: Groups must be clearly defined in a manner that will not violate the definite predetermined allocation formula requirement of Treas. Reg. section 1.401-1(b)(1)(ii) and is objectively determined with no Company discretion.