Plan Design for Younger Owner of Small Firm

[Lynn Campbell]

Is there a plan design which will enable contributions to favor the younger ER whose employees are all older than the ER? Is there a "reverse" cross tested technique that I am overlooking? Thanks for any ideas.

[Lorraine Dorsa]

The is a method for "ageless" (or DC general test with imputed permitted disparity) plans which could provide for extra $ to a younger owner. However, it generally requires a fairly significant contribution (about 13% of pay as I remember) to a group of NHCEs. With the right demographics, it's better than integrated for the HCE, but a lot more complicated.

Due to the need to provide a large contribution to a group of NHCEs (you need enough NHCEs in this group to pass the DC general test--at least 22.5% to as much as 70%), this is not a common plan design.

Essentially, you define classes of employees--HCEs, favored NHCEs who will get the high contribution and other NHCEs who will get the minimum contribution. Then you allocate the minimum to the other NHCEs, the large contribution to the HCE and a contribution equal to the HCE's % less 5.7%. Then you run the DC general test with imputed permitted disparity as proof that this allocation passes.