Top 20% HCE group - can a change be made to use it?

[Guest A. Rostosky]

I have an employer who should be using the top 20% group for testing, but they haven't been. Is it too late to change for 2000 testing?

[rcline46]

Yes it is too late for 2000. This is not one of the type of amendments that would increase benefits and / or funding.

[Guest]

rcline:

it could increase/decrease benefits/funding in a class plan if classes are broken up into class 1= HCEs class 2=NHCEs.

[rcline46]

In general, the use of the Top Paid group is to move highly paid employees from HCE to NCE status. In a Cross Tested plan, this would usually REDUCE the benefit they receive. Not a good idea to amend after year end to reduce benefits.

In a 401(k) only situation, the goal is to move high percentages from the HCE to NCE group which would reduce the givebacks for the remaining HCEs. Since a lowered giveback means an incresed permitted deferral, then benefits have been increased for HCEs only after year end. Again this is discriminatory and prohibited.

Oh, you say you increased benefits of those HCEs who fell out of the Top Paid Group? Guess what, they are STILL HCEs! and again discriminatory! TPG is a testing option and does NOT change HCE status, only where that HCE may be placed for testing!

So, cannot amend after year end, and depending on rules in plan (ie a standardized prototype!) maybe not even now for 2001!

[Guest]

I agree that you can't change after the plan year end. I should have made that clearer. well, actually I am not 100% sure on that, since we are in the remedial period for restating plan documents. Just as you will list in your restated document if you used current or prior year testing for ADP I thought you could do the same with top paid group election. (operational compliance). I haven't done it on any plans, but as i said I'm not 100% sure on that one.

what you think?

My only comment was that I wouldn't make a blanket statement that it wouldn't increase benefits. In a 401(k) cross tested plan, it might help the ADP test, but could hurt the cross tested portion and you might have to increase the contribution to the rank and file.

[rcline46]

Top Paid group is not one of the items covered by the RAP. That is, it is not new law so any changes must be by current amendment ( and maybe included in restatement).

[Guest]

I still am not not 100% sure on that. In reality, the top paid group elction was something new - If I remember correctly previously you use to have the following:

hce greater than 100,000 no ifs and or buts

or top paid group and comp greater than 66,000 (or there abouts as indexed) and limited to top 100 HCEs.

the new law merged these together. (Congress wanted one thing and the Senate wanted another, so they made the election an option.)

The top paid group election is also on the operational checklist Sal Tripodi included at the ASPA conference (as well as in his book).