Decreasing Tiered Profit Sharing Formula

[EagerToKnow]

Plan has decreasing tiered profit sharing formula based on compensation:

• 2% of the first 30k in comp
• 1% of the next 10k in comp
• 0.5% of the next 25k in comp
• 0.25% of the next 35k in comp
• 0.1% of the next 65k in comp

Would this require General (Rate Group Test)?

Thanks!

[Mike Preston]

24 minutes ago, EagerToKnow said:

Plan has decreasing tiered profit sharing formula based on compensation:

• 2% of the first 30k in comp
• 1% of the next 10k in comp
• 0.5% of the next 25k in comp
• 0.25% of the next 35k in comp
• 0.1% of the next 65k in comp

Would this require General (Rate Group Test)?

Thanks!

Of course. 

[Lou S.]

Yes but hard to see a scenario where it would fail if you did testing on a contribution basis. I suspose if you had low paid owners or low paid owners kids in the plan you could run into some situations where it would fail but I'd think in most cases you'd pass pretty easy.

[EagerToKnow]

Thank you all for confirmation.  

Yes, hard to see it failing Rate group test, but with total annual contribution being so small, it would be nice to avoid additional testing requirements.

 

[Mike Preston]

10 minutes ago, EagerToKnow said:

Thank you all for confirmation.  

Yes, hard to see it failing Rate group test, but with total annual contribution being so small, it would be nice to avoid additional testing requirements.

 

Yes, it is very likely to pass. Will pass every year you run the test.  And fail every year you don't. ?

[shERPA]

3 hours ago, Mike Preston said:

Yes, it is very likely to pass. Will pass every year you run the test.  And fail every year you don't. ?

This!

[BG5150]

Is that with everyone considered their own rate group?  If not, would this require a BRF test?

 

[Mike Preston]

4 hours ago, BG5150 said:

Is that with everyone considered their own rate group?  If not, would this require a BRF test?

 

Formulas are never testes for BRF. Just amounts testing. 

[shERPA]

1 hour ago, Mike Preston said:

Formulas are never testes for BRF. Just amounts testing. 

BRF needed for different rates of match.  Not PS though.