Combo plan, CG, deduction related

[Jakyasar]

Friday afternoon, no brain activity as usual.

Combo CB/DC. CG with ABC corp and XYZ corp

ABC sponsors both plans and XYZ is an adopting employer for DC plan only

DC is 401k with SH match

CB excludes all XYZ employees. All ABC employees participate in both plans and get PS allocation as well.

None of the XYZ employees defer and none get any PS allocation either (401k/SH has 3 months and PS has 12 months+1000 hours). None of the XYZ employees work 1000 hours but all eligible for deferral+SH and since no one defers, no one get SH thus T/H is satisfied.

ABC eligible compensation is 500k and XYZ eligible compensation is 100k

Need to use 31% rule for deduction.

Do I use 500k or 600k?

Thanks

[C. B. Zeller]

Not sure I follow your comment about top heavy. Are you saying that none of the XYZ employees have EVER worked 1000 hours in a year, meaning they are all otherwise excludable and therefore don't have to receive a top heavy minimum contribution under SECURE 2.0 rules? If so, then I agree. However if any of them ever do work 1000 hours then they will have to receive a top heavy minimum because the DC plan does not consist SOLELY of deferrals+safe harbor, and therefore doesn't qualify for the top heavy exemption. If this is a concern that there might be XYZ people who work 1000 hours in the future, I'd recommend separating the 401(k)+safe harbor and the profit sharing into separate plans so that you can maintain the top heavy exemption.

Anyhow, use $500k for your deduction limit calc. None of the XYZ employees are benefiting in the plan so you can't count their comp.

[Jakyasar]

Corey, tx for your comments.

No one worked 1000+ hours