New Comp Contribution red flags

[Sammiemor]

Maybe you can settle a debate I am having with my supervisor.

When doing a new comp contribution calculation, should it be an automatic red flag if an owner is getting less of a contribution % than a non owner?

[K2]

Typically the point of a new comp allocation is to give higher contributions to the key, loosely defined, people at the company, whether that's the owner or anyone else.  That said, it would be unusual to see a non-owner benefiting at a higher rate than an owner, and it would be a red flag in the sense that you would want to verify that this is the client's intention.  Not that it's wrong, just that it's outside the norm.

[BG5150]

Is that non-owner an economic engine of the firm?  Is he or she an HCE? Maybe the owner wants to keep costs down, but also reward someone for a job well done.

[Sammiemor]

Yes BG5150, the other employee was an HCE and the plan contact. I guess cost was often an issue so I didn't see it as an automatic red flag before. Thanks!

[Sammiemor]

Thank you both for your replies. Very helpful!

[CuseFan]

As kc noted, I would confirm with the client (owner). If you have the plan contact - the one presumably giving you the contribution amounts or rates - getting the highest amount or rate, it smells a little funny. This may all be on the up and up, but still warrants a double check and will demonstrate to the owner that you're looking out for him or her.

[Tom Poje]

once many moons ago I heard tell of a plan in which all the contributions were rounded to the nearest $. for the sake of the argument, let's say everyone received 5%.

ok, no big deal. then one year someone decided well, maybe due to rounding the plan should be tested for nondiscrim, just to make sure HCEs weren't all rounded and the NHCEs rounded down.

nope, turns out everyone was rounded down and then that amount was added to the guy 'running' things (and then his contribution was rounded down)

hmmm. so you never know.

[K2]

I had an office manager once who was skimming from the company.  She inflated her salary and gave herself a higher contribution than the staff.  She eventually got caught and went to jail.  Fortunately the client didn't think it was out fault that we didn't catch her skimming, but in retrospect the signs were there for the potential for her to have been misdirecting us for her own benefit.  So with that said, IAW CuseFan.  If the non-owner client contact is directing you to allocate more to her/him than the owner, a call to the owner is warranted.