Integration - Maximize

[TH 401k]

I'm trying to figure out how to maximize owner contributions using the integration method, but I'm not sure how to handle the NHCE allocations. Can anyone have any idea about it?

This 401(k) plan has 4 HCEs — 3 are owners and 1 is an HCE due to compensation. There are 12 NHCEs. The plan uses integration at 5.7%, and the 3 owners are getting different additional Profit Sharing percentages to reach their annual addition limits.Excluding the 5.7% integration, the owners are receiving 6.92%, 9.88%, and 12.93% in extra Profit Sharing.

Now, I’m unsure how much Profit Sharing to give the NHCEs and one HCE beyond the 5.7%. Can I just give all NHCEs 5.7% + the lowest HCE extra (6.92%) = 12.62% and still be compliant? Or is that not allowed?

Also, if anyone has official guidance or Treasury regulations that explain this kind of setup, I’d ready to read more and understand it better

[Lou S.]

Is the plan formula integrated with SS or is it a new comp design something like where everyone is in their own group where you are dong the 401(a)(4) testing with permitted disparity.

Because if its the former it's pretty straight forward where every one gets 1 percentage on the base salary plus an additional percentage on the excess salary. So in your case it's possible everyone should be getting 12.93% base plus 5.7% excess and you look to the doc on 415 for the two owners who will go over the 415 limit and see what your document says in that situation. It may be refund of elective or it may be limit employer contribution.

If it's the later, you should be able to run the calcs through your software and see what you need to pass.

But as they say, when in doubt, read the document.

[TH 401k]

@Lou S. The plan is integrated with Social Security, using the standard 5.7% integration formula. The client has requested to maximize contributions for the owners. After applying the 5.7% to eligible compensation (including excess compensation), I calculated the remaining Profit Sharing contributions needed to reach the annual addition limit for each owner. The additional percentages came out to 1.72%, 6.20%, and 6.24%, respectively—all three being owners.

Now, I’m unsure how to proceed with allocations for the other two owners and the NHCEs. Should I: 1. Allocate 1.72% (the lowest remaining percentage) to the other two owners and NHCEs based on base compensation, or 2. Maximize each owner up to the 415 limit, and then use the highest HCE percentage (6.24%) as the allocation rate for all NHCEs?

In the attached image, I’ve applied the second approach—allocating 6.24% to all NHCEs. I’m not certain if this method is correct and would appreciate clarification.

If I’m understanding correctly, I haven’t been able to find a specific provision or Treasury Regulation that explicitly permits this method of allocation. Could you please point out the relevant section if it does exist?

And if my current allocation approach is incorrect, I’d appreciate your help in correcting it so I can better understand how to apply integration allocations properly in this kind of scenario.

[Lou S.]

I'm not sure what you are doing, but you might want to talk to your pension software provider and it looks like you have an extra comma in the wrong spot on Comp/Excess comp fields that's somewhat confusing.

And if it's standard integration formula, I already answered how to allocate above but you should confirm with your plan document. 

The rules for permitted disparity are in IRC §1.401(l) and the regulations there under.

I do not believe the method you are proposing will be in compliance with the terms of your plan document, but you can run it by you document provider and see what they say.

 

[drakecohen]

Numbes look fine in you want to maximize A, B, and C though the plans I have typically only look to maximize A. The cost of maximizing in additional money going to NHCEs is 6.24% - 1.72% and since C is relatively young new compararability might not work better if a prime objective is maximizing C.

[TH 401k]

20 hours ago, Lou S. said:

I'm not sure what you are doing, but you might want to talk to your pension software provider and it looks like you have an extra comma in the wrong spot on Comp/Excess comp fields that's somewhat confusing.

@Lou S.There seems to be a formatting issue with the comma in the Excel file. My main question is: Is it permissible to maximize owner contributions under the Integration allocation formula using the 5.7% Social Security integration level? After reviewing some comments, I’m a bit confused. If we allocate the maximum allowable contribution to the owners, does the plan need to undergo 401(a)(4) nondiscrimination testing?

Also, please refer to the attached file, which currently does not include Profit Sharing allocations. Based on the provided values, could you walk me through how to properly allocate Profit Sharing contributions to maximize all three HCEs while remaining compliant? @drakecohen If possible, could you help me determine the optimal allocation values for this scenario? That would really help me apply the correct approach in similar upcoming plans. 

On 10/17/2025 at 1:11 AM, Lou S. said:

Because if its the former it's pretty straight forward where every one gets 1 percentage on the base salary plus an additional percentage on the excess salary. So in your case it's possible everyone should be getting 12.93% base plus 5.7% excess and you look to the doc on 415 for the two owners who will go over the 415 limit and see what your document says in that situation. It may be refund of elective or it may be limit employer contribution.

It is refund the elective. If it limit on employer contributions, what is the appropriate method or approach we should follow to address it?