Towanda Posted June 14, 2018 Share Posted June 14, 2018 A law office has two partners, and a new associate who is in his late 30s. 3 NHCE staff are in their 20s and 60s. The new associate, who is a go-getter, got a lousy Profit Sharing contribution for 201, and was unable to benefit in the Cash Balance Plan. He is unhappy with this outcome. The partners want to keep him happy. In terms of plan design, could we: Exclude the new associate from the CB plan (he isn't benefiting anyway). Amend the DC plan to exclude the partners, and change from a cross tested allocation to a design based safe harbor, such as an integrated allocation, so that the young associate can get a larger allocation in the DC plan. If we were to do this, must we still combine the plans for 401(a)(4), or is the DC free from that requirement because it isn't subject to 401(a)(4), and the other HCEs aren't benefiting in that plan? In other words, there is no crossover between the two plans where HCEs are concerned, so does this give us some wiggle room for the young associate? By the way, the associate is not Key. Thanks! Link to comment Share on other sites More sharing options...
Tom Poje Posted June 14, 2018 Share Posted June 14, 2018 you have a number of things going on. 1. cash balance plan is a DB plan so has to pass minimum distribution. 2. there is no requirement the plans be aggregated for nondiscrim testing, provided they can pass coverage testing on their own (and then of course whether they can pass nondiscrim on their own). if you need the avg ben pct test then 1.410(b)-5(e)(3) indicates you would run 2 Average Ben Pct test 1 for the DB (all dc benefits treated as 0, plan tested on benefits basis), and 1 for the DC plan (all DB benefits treated as 0, plan tested on an allocation basis) Link to comment Share on other sites More sharing options...
Larry Starr Posted June 14, 2018 Share Posted June 14, 2018 4 hours ago, Towanda said: A law office has two partners, and a new associate who is in his late 30s. 3 NHCE staff are in their 20s and 60s. The new associate, who is a go-getter, got a lousy Profit Sharing contribution for 201, and was unable to benefit in the Cash Balance Plan. He is unhappy with this outcome. The partners want to keep him happy. In terms of plan design, could we: Exclude the new associate from the CB plan (he isn't benefiting anyway). Amend the DC plan to exclude the partners, and change from a cross tested allocation to a design based safe harbor, such as an integrated allocation, so that the young associate can get a larger allocation in the DC plan. If we were to do this, must we still combine the plans for 401(a)(4), or is the DC free from that requirement because it isn't subject to 401(a)(4), and the other HCEs aren't benefiting in that plan? In other words, there is no crossover between the two plans where HCEs are concerned, so does this give us some wiggle room for the young associate? By the way, the associate is not Key. Thanks! You didn't give us enough info. I can't figure out if the new associate is highly compensated or not. So in case it is NOT, your solution could be much easier. Do an -11g amendment to increase his allocation in the PS plan; that would also help with non-discrimination testing if the plans are being aggregated for testing. If he is an HCE, see Tom's response above. BTW, I think he meant minimum coverage in 1. Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
Tom Poje Posted June 15, 2018 Share Posted June 15, 2018 no I meant min participation. they say they have cash balance, and if you start excluding people you run the risk of failing min. participation. since it is a cash balance plan, at least many I have seen, this can be a problem because of the formula, even though you pass coverage you end up failing min partic. In point 2 I said both plans would need to pass coverage on their own. the comment was made he was unable to benefit in the cash balance (for whatever reason). maybe he didn't meet eligibility yet. but then he will eventually be eligible, and I took the comments to mean he would not be happy with the results even when that happens. Link to comment Share on other sites More sharing options...
C. B. Zeller Posted June 15, 2018 Share Posted June 15, 2018 You didn't say why he is unable to benefit in the CB plan, but I'm assuming the younger HCE was hired in the second half of 2016, since he would have had to have 2016 income >$120k in order to be HCE for 2017, and with 1 year of service plus Jan 1/July 1 entry dates he wouldn't be eligible for the CB plan until 2018. If this is the case, then for 2017 you can disaggregate him as otherwise excludable. Assuming he is the only employee who is otherwise excludable, then you have separate coverage and nondiscrimination tests covering just him, and you can do pretty much whatever you want. If this is not the case, for example the CB plan just excludes non-owner HCEs as a class, then you could try to restructure the aggregated test into component plans. Have one component with the partners and the younger NHCEs, and test on accrual rates. Have another component with the younger HCE and the older NHCE and test on allocation rates. This should let you get the younger HCE an amount on the DC side equal to at least the minimum gateway rate for the NHCEs, plus a little bit based on their equivalent accruals in the CB plan. Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
Larry Starr Posted June 15, 2018 Share Posted June 15, 2018 7 hours ago, Tom Poje said: no I meant min participation. they say they have cash balance, and if you start excluding people you run the risk of failing min. participation. since it is a cash balance plan, at least many I have seen, this can be a problem because of the formula, even though you pass coverage you end up failing min partic. In point 2 I said both plans would need to pass coverage on their own. the comment was made he was unable to benefit in the cash balance (for whatever reason). maybe he didn't meet eligibility yet. but then he will eventually be eligible, and I took the comments to mean he would not be happy with the results even when that happens. Yup; understood. Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
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