401k SH with PS - Increase PS to Term <501 hours acceptable?

[cheersmate]

We have a small cross-tested 401k Profit Sharing Plan that provides 3% SHNEC to all plus a discretionary Profit Sharing (PS), all in their own PS allocation rate group.

3 HCEs

2 NHCEs 

• 1 is newly eligible, older and 0% vested;
• 1 is a younger, long service employee who has terminated this year with less than 501 hours and is 100% vested (wage is about 1/3 of the older NHCE).
• Q: (1) Is it permissible to increase the terminated NHCEs PS allocation rate in order to pass (a)(4) testing? (2) Could it be argued effectively that increasing the terminated NHCE is more reasonable than the active NHCE because the terminated NHCE is 100% vested whereas the active NHCE is 0% vested? (3) If this could be considered abusive on review, would it be acceptable if both NHCEs received the increased PS allocation rate, noting that in doing so the terminated NHCE would still be the only one contributing to a passing test result?

Thank you

[Gilmore]

What does the document say about who receives the non-elective contribution?

[cheersmate]

1 hour ago, Gilmore said:

What does the document say about who receives the non-elective contribution?

Profit Sharing is discretionary and allocated on a "grouping method" whereby each participant is a separate classification.  There are no conditions to share in the allocation (no minimum service or last day requirement).

[Bill Presson]

Then I don't see the issue here. You're not even having to do an -11g amendment.

[cheersmate]

29 minutes ago, Bill Presson said:

Then I don't see the issue here. You're not even having to do an -11g amendment.

Thank you Bill, I agree.  Also, no -11g amendment needed.

FWIW, the terminated participant is 100% vested and the employer really cares for the participant - wants to boost the contribution anyhow!

Happy Holidays!