Different PS Formulas

[PFranckowiak]

401k Plan with PS only  (no match)  Client wants a design to benefit some more than others.

NO HCE's by ownership or compensation.

Want Group A to get 10% PS    

Group B to get 5% PS

Group C to get 0% PS

1.  What do I have to look at?  Does it matter how many are in each group?

2.  Is it better to exclude Group C (smallest number of EE's) from the plan by definition or just exclude them from the PS by definition.

No HCE's in plan, plan is not Top Heavy.

 

 

 

 

[Bill Presson]

If the plan actually covers only NHCEs, you are free to do just about anything. If group C isn't deferring, then I would just exclude them.

Other than that, I would use a plan with everyone in their own group. You can always "group" them in the way you have above.

[K2]

I agree with Bill.  The document would say everyone is in their own group and then you don't have to worry about definitions and people moving from one group to another.  I wouldn't bother to exclude group C from the plan, but you certainly could.

[BG5150]

If you include group C in the plan and give them zero (with "everyone in their own group"), you lose the average benefits test for coverage if that matters here.

[Mike Preston]

BG, if the plan has no HCE's, how can it matter?

[PFranckowiak]

Now since they know they can exclude a few, now they want to exclude more.  They only want to cover about 1/2 the employees as they other 1/2 are not considered long term, are they until a project is finished after a few years.    So they will meet the one year of service currently in the plan.  But if no HCE's, no testing, no problem.  I did tell them if one EE snuck into HCE because of some taxable income that isn't regular pay, it would blow all the testing.

[chc93]

On 4/13/2017 at 9:39 AM, PFranckowiak said:

Now since they know they can exclude a few, now they want to exclude more.  They only want to cover about 1/2 the employees as they other 1/2 are not considered long term, are they until a project is finished after a few years.    So they will meet the one year of service currently in the plan.  But if no HCE's, no testing, no problem.  I did tell them if one EE snuck into HCE because of some taxable income that isn't regular pay, it would blow all the testing.

Amend plan to put each employee in his own group.  "Group" contributions as desired.  If employee sneaks into HCE status, give him zero... cost of making so much income.

[RatherBeGolfing]

18 hours ago, chc93 said:

Amend plan to put each employee in his own group.  "Group" contributions as desired.  If employee sneaks into HCE status, give him zero... cost of making so much income.

Which takes us back to BG's earlier post...

On 4/12/2017 at 10:40 AM, BG5150 said:

If you include group C in the plan and give them zero (with "everyone in their own group"), you lose the average benefits test for coverage if that matters here.

Exclusion of employees by name or other specific criteria having the same effect as an exclusion by name is not considered a reasonable classification.

[chc93]

Understood.  But if the one HCE gets zero, coverage is not an issue, so reasonable classification is also not an issue.  If HCE needs contribution, just gotta pass 70% ratio test for coverage, but with each employee in his own group, this might make it easier to pass 70% ratio.

[John Feldt ERPA CPC QPA]

I think you still need to be careful of IRC 410(a). For example, I don't think you can single out all employees with less than 6 years and give all of them $0.00 with everyone else getting some allocations. It's not a nondiscrimination issue, it's that you would look like your excluding employees longer than the maximum period of service allowed under 410(a)