Increasing PS Cross Tested Percentage to pass Testing for a Participant who worked less than 1000 hours but the plan has 1000 hour and last day requirement

Good Afternoon,

I have never had this situation before and I need the Forum's expertise:

The situation is  as follows:

There are two Company Plans, a Cash Balance Plan and a  Cross Tested Profit Sharing Plan. Together the plans are Top Heavy. The cash balance allocations must be tested with the Profit Sharing allocations. When non-discriminately testing the Cash Balance Plan with the Profit Sharing Plan, only one Participant, lets call him John, would need to have his PS percentage increased from the 5% MTH allocation (the 5% MTH allocation provided to all NHCEs passes the Gateway test) to 8.35% of compensation.  This provides the minimum increase needed to pass 401a4 testing.

As stated above, the Profit Sharing Plan is X-tested and to receive a Non-Elective PS allocation, the Plan Document has a 1000 hour and last day requirement and even though John was there on the last day of the plan year, he only worked 600 hours during 2021.  Knowing those facts can John receive a NE contribution greater than the 5% of compensation MTH contribution in the PS plan or do I need to increase another Participant’s PS allocation that did work 1000 hours and was there on the last day of 2021 to pass 401a4 testing?

Thank you,

Dawn

You may do either.  John's allocation will be via an 11g amendment and therefore must be 100% vested.  Check to see if the sponsor is ok with benefitting him, sometimes terminated employee's leave on bad terms and the sponsor is not willing to give them any additional monies.

4 hours ago, Nate S said:

You may do either.  John's allocation will be via an 11g amendment and therefore must be 100% vested.  Check to see if the sponsor is ok with benefitting him, sometimes terminated employee's leave on bad terms and the sponsor is not willing to give them any additional monies.

There is some disagreement as to whether 100% vesting is required. Certainly something greater than 0.

11 hours ago, Mike Preston said:

There is some disagreement as to whether 100% vesting is required. Certainly something greater than 0.

Agreed.

16 hours ago, Nate S said:

sometimes terminated employee's leave on bad terms

True, but facts of this case say person was employed at YE, just didn't have the hours.  

Thank you for your prompt and great responses.

7 hours ago, CuseFan said:

 

True, but facts of this case say person was employed at YE, just didn't have the hours.  

Oops, good catch.  Make sure the 410 failsafe is not in the plan either.

In a recent webinar, the presenter mentioned that he would be more comfortable with 100% vesting, especially given the amounts are usually very small. In my opinion, jury is still out on this. As Mike said, got to give something.

Years ago, I recall hearing that the lowest vested percentage in the vesting schedule would be reasonable.  So 20% with a 6-year vesting schedule.