restructuring

[Draper55]

I have a basic profit sharing plan for a group of 10 ees;2 are hces and 8 are nhces.

usual cross testing technique doesn't work that well do to demographics.I would like to do the following and hope that it is valid.

two component plans with 1 hce and 4 nhces in each. each plan would pass the ratio% test. for 401(a)(4) I want to cross test one component plan A. the only rate group will have one hce and 3 nhces which is >70%(3/8/(1/2))(I am counting those in the other component plan(B) as 0s for this purpose). for the other component plan B I want to allocate as if it were a 401(l) integrated plan using 4.3% and a $41k integration level. the ratio% for B is>70 also. The whole plan satisfies the ratio% test but not the average benefits test. Anything seem off here??

[Mike Preston]

You can't use the 4.3%/$41k for component plan B. You must use "regular" 5.7% and integration level in this scenario.

[Tom Poje]

reminder:

without looking at contribution numbers, you can't avoid the gateway by component plan testing 1.401(a)4)-9©(3)(ii)

or put another way, the NHCEs must receives at least 1/3 the rate (or 5%) of the HCEs before you can split the plan into component plans.

[Draper55]

I did see that you must use 5.7% after I posted this(thank you Mike for confirming this)..interesting that you can use the 4.3 and other integration levels for the entire plan but not for a component plan.. regarding the gateway...do you think that you only have to satisfy the gateway for the cross tested component plan or also the component plan that is tested on a defined contribution basis?

[K2retire]

You have to get through the gateway before you can do component plans or cross testing.

[Mike Preston]

Let me split hairs. You need to satisfy the gateway rules if you end up testing at least one component plan using cross-testing. 99 and 99/100% of the time that will mean everybody is entitled to the gateway. If I spent enough time I could conjure up a census where using two component plans, one of which is tested on the basis of contributions without permitted disparity and the other of which is tested on the basis of contributions with permitted disparity, is called for. In that case, no gateway would be required.