Restructuring

[PFranckowiak]

3 HCE's (1 21 year old son of owner)

40 other EE's

1 Older HCE's want to get maximum The other just minimum gateway.

Son only 5% minimum gateway

Each EE in own group

Tested together fails Average Benefits Test

Can I restructure into two component Plans?

1. 2 HCEs and 30 NCHEs 30/40 / 2/3 = 113.6

2. 1 HCE younger and 10 NHCEs 10/40 / 1/3 = 75%

Or

1 1 HCE and 10 HCES - Average Benefits Test (Only HCE that wants to have max)

2. 2 HCEs and 20 NCHEs - Ratio Percentage Test

Test Group 2 - safe harbor allocation % as all get Minimum Gateway

Test Group 2 - Average Benefits Test

Am I missing anything? Other tests?

Can I just set them in two different divisions on software and test each division separately?

Thanks

[Tom Poje]

for testing I think you mean

test 1 group on an accrual basis

test 1 group on an allocation basis

there is only one avg ben pct test and that includes everyone and all contributions no matter how you do split the folks

I can only speak for Relius and not other software

and this is a rather quick explanation:

so you can put people into 2 divisions (or more) - those on an accrual basis and those on an allocation basis

when testing the group on an accrual basis you fill in the grid

# of HCEs not benefiting, # of NHCEs not benefiting = those not included in the accrual basis

do the same for the allocation basis...

so when you are all finished, you report should indicate total NHCE and total HCEs as 40 and 3.

on Relius there is an override box "pass/fail avg ben pct test" that has to be answered once you plit the groups

[PFranckowiak]

So if I split into two groups and Group 1 is the Accrual Basis - Ebar testing and all the NHCEs in that group have an EBAR higher than the HCE - then am I correct in that I don't have to pass the Average Benefits Percentage Test? Its the Average Benefits Test that fails due to the HCE son.

[Tom Poje]

correct. it is no different than if you actually had 2 separate plans.

if you can pass ratio pct at 70% when treating the employees from the other 'group' as includable and not benefitting then you don't need the avg ben pct test

[PFranckowiak]

Thanks so much Tom - Was fine last year until they added young son. Appreciate your help!