410b test and suspension provision

[Mr Bagwell]

I need help to see if my logic is correct...

Small plan.  3 NHCE and 2 HCE.  Discretionary match and profit sharing.  Allocation suspension applies.  Last Day and 1000 hours for match and profit sharing ( 2-tiered).  Top Heavy Plan.  Participating Comp.  Semi-Entry.

One of the three NHCE terminates in 2016.  So 410b fails (m) and (a) at 66.67%.  Can't use ABT because of suspension.  So the terminated employee must benefit to pass 410b.

For Match:  the terminated employee does not defer so does not get match.  No allocation condition is going to get him a match.  I yes-override employee in Relius to get a passing (M) test.  In essence I have removed the last day allocation provision and because employee is able to defer, the employee benefits for match..... at least that is my thoughts.

Profit Sharing:  the terminated employee shares in the profit sharing after "removing" the last day allocation provision.  Employee came in 7/1/2016 so use compensation from 7/1/2016 to day of term.  I would guess if Top-Heavy allocation would be greater than profit sharing, I would put in the TH contribution amount. Profit sharing is greater in this case.

Am I missing anything in this scenario?

Of course, I tell the bosses and sales team to ask about number of employees and design plan accordingly.....

[Tom Poje]

are you bringing him via plan document fail safe language or are you bringing him in because plan fails testing so corrective amendment?

If it is corrective amendment you probably have to make any such contribution 100% vested (you indicated he came in 7/1/2016.

A corrective amendment requires 'substance'. providing a contribution to pass testing to a 0% vested employee wouldn't meet this requirement.,

 

I was unclear what you meant by not using ABT due to 'suspension'.

[Mr Bagwell]

The employee met eligibility requirements and became a participant 7/1/2016.

I am bringing him in via plan document fail safe language.

[BG5150]

I don't think you have to give him a TH allocation.  He is not employed at EOY.  He is getting some PS, so is therefore benefiting.

 

And what is "suspension of allocation"? That's a new one to me.

[Mr Bagwell]

Sorry for the confusion on the "suspension of allocation".....

It refers to the fail/safe language in the document.  Our plan doc allows you to Apply or Does not Apply the suspension of allocation conditions. 

[Tom Poje]

ok, thanks. yes, fail-safe language eliminates the ability to use the avg ben test if you fail coverage. that explains 'suspension' as well. I never heard that term either in regards to something like this