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Contribution Eligibility - Profit Sharing + Cash Balance Plans


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Generally I know Profit Sharing Plans say that someone needs to be employed on the last day of the Plan Year + work 1,000 hours in order to be eligible.

What happens if it's a combo plan tested together?

1) Still employed but works less than 1,000 hours - My understanding is that they don't get the Cash Balance Contribution (as per the Plan), but they still get the 7.5% gateway.

2) Worked over 1,000 hours but terminated employment - They still get the Cash Balance Plan, but I don't believe they get the Profit Sharing

Am I correct on these two statements?  I'm second guessing myself now.

Thanks!

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Look at eligibility for a CB credit or PS contribution independently to determine whether someone gets either or both, and then apply your gateway requirements, which might result in all being provided through PS. if provisions don't allow for enough to get gateway then you're looking at an 11(g) amendment. Other complicating factors include top-heavy and safe harbor non-elective.

All this should have been flushed out when the CB was designed and implemented and PS provisions amended for compatibility.

1) Employed 12/31 but <1000 hours, CB depends on requirement, PS depends on top heavy. If they get anything in either plan then they must get gateway.

2) Terminated >1000 hours, CB depends on requirement, PS nothing. If they get CB they need to get gateway. If PSP has no overriding failsafe language for gateway then you need an 11(g).

I like to see CBP with 1000 hour requirement and PS individual groups with no requirements, and if it's a SHNE then that's what you essentially need.. 

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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Generally, when a Cash Balance plan is adopted,  the Profit Sharing plan  should provide (or amended to provide) that there is no End of Year employment requirement  .....  because it usually better (cheaper) to provide staff benefits in the PS plan.

 

....  Jeff

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