cross-testing controlled group and excluding one company

[TPAnnie]

We have a 401k plan that covers several companies part of a controlled group.  The plan is not top heavy and is not a 401k Safe Harbor.

All employees of all companies are eligible for 401k and match, but PS component excludes one classification of employees (which is mostly HCE’s). 

The PS contribution is allocated on the grouping method.  Because most of the non-excludables are HCE, it handily passes 410b.

May one of the companies make no profit sharing contribution for it’s employees as long as 410b and the general tests under 401a4 passes? 

 

Reason for my question is, I was running projections and forgot to allocate a PS to one of the companies and yet, all my testing showed PASS.  I believe the gateway test is not including that missing company because they didn’t receive a 401a benefit, which I think is correct, but it just seems too good to be true that I could not benefit one whole company.  (While they are deferring and receiving a match.)

[CuseFan]

No problem, as long as 410b and 401a4 pass, which they very well could easily if you have a lot of non-excludable HCEs who do not benefit.

BUT, you still need to allocate under the terms of the plan (and the terms of the employer's declaration of profit sharing). If the PS is declared as going to A, B and C but B got excluded by mistake, I see that as a problem. If PS is declared by each company separately, and A and C declare PS while B does not, then no problem (subject to testing of course).

Remember, if the employer(s) designates each individual's PS then there should be declaration, documentation, memo, etc. as to that effect and as to the actual allocations.