Not sure on this one.....

[Bri]

A coworker has a plan where everyone's his/her own group, but still has a last day/1000 hours rule.  Also there's a safe harbor 3% for everyone.

There's a young HCE (owner's daughter) who made 108,000 or so in 2018.  And a couple of NHCE terminees who only got the 3%.

The profit sharing allocation was run such that each individual's group was allocated the exact same amount they would have gotten if the plan were written to be integrated at $80,000, with the percentages backed into by solving to get the parents to $61,000.  (Maybe something like 13% of pay plus 4.3% of excess over 80k.)

That, in and of itself, would be a safe harbor formula.  But since it's not actually written that way in the plan document, is it enough to simply pass the coverage on the additional profit sharing?

I'm concerned that because the integration level is 80,000, the young HCE got an extra "integrated piece" that would not normally have come into play had the actual TWB been used as the integration level.  And so, when general testing the actual amounts, her total allocation rate (imputing disparity) ends up being just slightly higher than everyone else's, thus failing her rate group.

So - does that matter?  In other words, is it enough to run the plan as though it were an integrated formula and hang our hat on that?  Or does the fact that the document doesn't actually say it's integrated, mean that we have to general-test it with the actual taxable wage base in those calculations?

Thanks!

--bri

[Mike Preston]

19 hours ago, Bri said:

So - does that matter?  In other words, is it enough to run the plan as though it were an integrated formula and hang our hat on that?  Or does the fact that the document doesn't actually say it's integrated, mean that we have to general-test it with the actual taxable wage base in those calculations?

Yes. No. Yes. 

[John Feldt ERPA CPC QPA]

You could have imputed disparity using 100% of the taxable wage base, but my understanding is the 100% TWB is the only level available for imputing.

[Bird]

What is the status of the contribution (trial or completed)?  Employer tax return filed or not?

If it's a trial, and everyone is in their own group, just give the young HCE the base % with no integration, or figure out what little extra would pass.  I might want to know why the allocation is being done that way before opining on other angles.

If it's completed, I'd say there's definitely a problem,;the fix might be easy or hard depending on whether accounts are self-directed or not.

[Bri]

I think everything was already finalized and filed with the numbers. 

I saw the data after the fact, when the admin in the office asked me to have our actuary peek at a potential cash balance plan on top.  Those numbers WITH the CB were better (less staff cost) than hers WITHOUT it, so I figured I'd open Pandora's Box and look at her valuation report.

Thanks!