Cross Tested Plan Deposits -- Testing Each Deposit

How fanatical are y'all about this?  I've sometimes mentioned it when talking to clients, but I've never really been too big on it.

My current situation: plan of an s-corp does monthly deposits of 3% safe harbor and 2% profit sharing for everyone including HCEs.  They are considering doing additional profit sharing for the owners after the end of the year; as much as they can do that still passes cross-testing without giving the staff more allocation.  Obviously, this allocation would be all HCE and no HCE.  If this deposit was tested as a discrete event, total fail.  But it would pass for the year in total.  Given the recent comments by the IRS that they want to increase their audit revenue, is this something that I should be discouraging?

Wait wait wait... in my head, I was POSITIVE that testing each deposit was a thing.  Now, I can't find any reference to it anywhere.  Sure, I'd be thrilled if it were gone, but... am I through the looking glass or what? 

That suggests that an HCE's contribution must ALWAYS go in at the same time (sure, never earlier, but also never later) than an NHCE's.

The plan document also probably indicates the *allocation date* is the same regardless of when the deposits are made.  That's where the BRF of funding-timing would come into play.

There are any number of rules and regs that I go along with because "that's the rule", not because I believe they make sense.  This was one of them.

Yes, it's all based on the same "allocation date", so I agree that as long as the HCEs aren't getting their money BEFORE the NHCEs, then you can't call them out on anything there.

No issues except if you have allocation conditions on the profit sharing but are allocating before such conditions are satisfied. But as a cross-tested PS on top of 3% SH, every NHCE will need to get the gateway, so there probably shouldn't be allocation conditions anyway.

1 hour ago, Dave Baker said:

Possibly dumb question

and Dave, sorry if this is a sore spot, but shouldn't you be updating your log?

@Dave Baker, "xt" is short hand for "cross-tested".

@CuseFan, no allocation conditions on the PS, so that's not an issue.  All NHCEs will get 3%SH + 2%PS, so gateway should be satisfied unless PS gets too much... and since the goal is to limit the additional ctb to staff (if not hold it to zero), the gateway will dictate my upper bound.

OK, thanks for wiping away this delusion.

On 7/15/2022 at 1:11 PM, CuseFan said:

and Dave, sorry if this is a sore spot, but shouldn't you be updating your log?

Watcha mean? Log?

2 hours ago, Dave Baker said:

Watcha mean? Log?

sorry, logo. somehow the last o got left off.

There was no change in team name. No change in logo. Nope, didn't happen. No. No!

There. Reality altered.

No need to mess with reality, you can instead just say you're a really big fan of 'Major League'!!

just a bit outside...

to the OP:  What if the ER was ONLY depositing 3% through the year for everyone.  And then decided to to a 6% PS to the owners.  Do you see a problem with that?  (Let's assume it passes nondiscrim.)

And how would a BRF on deposit timing be tested?  Are more frequent deposits considered more valuable?  Or fewer?  Why?