Age Weighted Allocation / 3% Safe Hrbr Nonelective

[austin3515]

Can we use the Age Weighted Allocation method together with the Safe Harbor Nonelective? I have this nagging suspicion that the answer is no we cannot. Wouldn't this cause the equivalent benefit rates to be different at NRA? Case in point we have two very young HCE's (their father owns the business). Under Age Weighted they get very very little, but if I throw the 3% Nonelective on top, all of a sudden their Equivalent Benefits rates are much higher than the NHCE's (who are a little older).

I'm referring to the "safe harbor" Age Weighted method, the one that gets me out of the gateway minimum.

[austin3515]

OK, it just occurred to me to exclude HCE's from safe harbor. Thoughts?

[Bird]

Agreed that you can't; you have multiple formulas and you'd have to test both results together. Excluding HCEs from the SH is usually the best method. I'd put everyone in their own PS group for max flexibility, and you should be able to give the young HCEs something to make Dad happy.

I give you credit for trying to find a use for an age-weighted formula .

[Kevin C]

If you are talking about the age weighted formula plus the 3% SH, I think it would work as long as both formulas are available on the same basis. Under 1.401(a)(4)-2(b)(4)(vi) the sum of two formulas that would each separately be a 401(a)(4) SH allocation formula is considered SH. For the gateway, the age weighted + 3% total would have the same difference between adjoining ages as the age weighted formula by itself. You'd have to check, but I would expect it to meet the requirements for a Gradual Age or Service Schedule under 1.401(a)(4)-8(b)(1)(iv) and be exempt from the gateway.

Our document allows you to offset the PS allocation, so you could set it up to give participants a total allocation of the greater of the age weighted amount or the 3% SH. That would mess up your 401(a)(4) SH allocation formula, but could still qualify as a Gradual Age or Service Schedule for the gateway exception. I'd suggest that you verify that it does. If the kids don't receive the 3% SH, I would expect it to pass 401(a)(4) testing. I think the PS would still need to go to everyone who receives the 3% SH for it to work.

[Mike Preston]

Is it just me or what? Isn't the easy answer "yes, it works" because a safe-harbor design is a design that is the sume of two formulas, each of which constitute a safe-harbor design?

[austin3515]

Not if they do not have the same allocation conditions. But I like the fact that if I ditch the last day/1,000 hour rules on PS, then what you said is a true statement and I can get both. Darn good plan design. THANKS GUYS!!

(PS, Safe Harbor MAtch will not work out, all ee's contribute 5% or more).