401(k) plans and cross-tested plans

[smm]

The second paragraph of the Section B of the Explanation to the proposed regulations states "...if an employer also provides a 401(k) plan...then to the extent the HCEs are electing contributions under that plan, the highest HCE allocation rate may be lower than it would otherwise be, which in turn would lower the minimum required allocation for NCEs under the plan..."

Can someone give me a somple example of what this means? Thanks.

[rcline46]

If you allocate 35,000 to an HCE under a cross tested PSP only, the rate is about 20%. If a 401k is involved and the HCE gets 10,500 in 401k, then the crosstested PSP piece drops to 24,500. In the first case minimum NCE is 5%, in the second case the minimum is 1/3 of 24500/170000 and is less than 5%.