Testing Prevailing Wage and PS together

[justanotheradmin]

Is there a minimum rate that needs to be given as profit sharing? 

Facts and Circumstances

Plan Sponsor (C-Corp) has a 401(k) plan. the only contributions are typically 401(k) deferrals, discretionary match, and prevailing wage. 

Prevailing wage goes to everyone (stupid I know, but we did not write the doc), and the owner did receive a very very small (less than 1%) PW. 401(a)(4) passes, but 410(b) coverage does not. 

1. I'm not aware of any special rules for PW - but if there are any that would negate the need for 410(b)? Is average benefits good enough? I'm thinking no, because the allocation method and groups aren't a safe harbor or definitely determinable as in an older style new comp plan. 

2. the plan allows PS - on a pro-rata basis, and if a PS is given according to the document, and 410(b) is combined with PW it does pass. But how much PS should be given? 

- plan is not top heavy, and 401(a)(4) passes on an allocation rate basis, so no gateway minimum either. 

Surely someone has encountered this before? It is 10/15 so there may be something simple and stupid I'm not thinking about clearly. 

[justanotheradmin]

Sorry - update -edit to add, I think I'm getting myself confused. 

1. Ratio percentage test 

OR average benefits ?

Does the reasonable classification test apply to PW? Is the Average benefits percentage test good enough. All of that passes. 

I think its fine now... 

[BG5150]

If "everyone" get a prevailing wage contribution, how could coverage fail?

[Larry Starr]

On 10/15/2018 at 2:37 PM, justanotheradmin said:

Is there a minimum rate that needs to be given as profit sharing? 

Facts and Circumstances

Plan Sponsor (C-Corp) has a 401(k) plan. the only contributions are typically 401(k) deferrals, discretionary match, and prevailing wage. 

Prevailing wage goes to everyone (stupid I know, but we did not write the doc), and the owner did receive a very very small (less than 1%) PW. 401(a)(4) passes, but 410(b) coverage does not. 

1. I'm not aware of any special rules for PW - but if there are any that would negate the need for 410(b)? Is average benefits good enough? I'm thinking no, because the allocation method and groups aren't a safe harbor or definitely determinable as in an older style new comp plan. 

2. the plan allows PS - on a pro-rata basis, and if a PS is given according to the document, and 410(b) is combined with PW it does pass. But how much PS should be given? 

- plan is not top heavy, and 401(a)(4) passes on an allocation rate basis, so no gateway minimum either. 

Surely someone has encountered this before? It is 10/15 so there may be something simple and stupid I'm not thinking about clearly. 

I do a lot of PW/David Bacon work and wrote outlines for ASPPA annual on this subject.  I have to say I don't understand much of what you are saying.

Prevailing wage goes to everyone?  No, PW goes to those who work on PW jobs.  Not sure how that could be "stupid".  Explain what you are talking about here.

410(b) fails?  How?  You need to explain how you determined that.

I have no idea what an "older style new comp plan" is.

With some more explanation of what the issues are, we might be able to give you a cogent response.

[justanotheradmin]

Not everyone received a prevailing wage contribution. Only about half the workforce received prevailing wage. Unfortunately one of the people who received prevailing wage contributions into the retirement plan was the owner, who is also the only HCE. 

[BG5150]

I would say reasonable classification applies to prevailing wage.  It is clearly stated who gets it, it is a bona fide business reason and there is no employer discretion.