AlbanyConsultant Posted April 22, 2024 Posted April 22, 2024 Taking over a plan, and the plan sponsor mentions the profit sharing allocation. "I usually contribute $60K to be split among the participants at location A, and $50K to be split among the participants at location B." Oh, must be a class-based allocation, right? I look at the plan document, and the AA language says: Quote <<this is written in a provided blank space - AC>>The Employer's contribution shall be allocated as an amount taking into consideration amounts contributed to Social Security using the four-step Excess Integrated Allocation Formula as described in the attached addendum <<this is the standard "3% of comp, then 3% on excess comp, etc." - AC>>. NOTE: Under Question 30.B.i. <<this response is 30.B.i. - AC>>, the Employer will describe the allocation of Nonelective Contributions from the elections available under Question 30.B. and/or a combination thereof as to a Participant group or contribution type (e.g., pro rata allocation applies to Collective Bargaining Employees; contributions to other Employees will be allocated in accordance with the classifications allocation provisions of Plan Section 4.3(b)(3) with each Participant constituting a separate classification.) The following four parameters must be met to utilize this section: 1. The formula described must satisfy the definitely determinable requirement under Reg. §1.401-1(b)(1)(ii). 2. The groups cannot be designed in such a manner to where the only NHCEs participating are those NHCEs with the lowest amounts of compensation and/or the shortest periods of service and who may represent the minimum number of these employees necessary to satisfy coverage under IRC §410(b). 3. The language of the formula must require the employer to notify the trustee in writing of the amount of the employer contribution being given to each group. 4. In the case of selfemployed individuals (i.e., sole proprietorships or partnerships), the requirements of Regs. §1.401(k)-1(a)(6) continue to apply and the allocation method should not be such that a cash or deferred election is created for a self-employed individual as a result of the application of the allocation method unless such election has been created for all eligible employees & the full 401(k) requirements have been provided. If the formula is non-uniform, it is not a design-based safe harbor for nondiscrimination purposes.) OK, I guess this supports a separate integrated allocation for each location (though a review for top heavy is plan-wide, not location-specific). My real questions are: 1. What about someone who is getting comp in both locations. I suppose it's not a big deal if the total is less than the SSTWB (or whatever lower amount the integration is based on), but let's say one has $110K in each location? 2. Does this have to be tested in any other way? Normally, integrated tests are all good if they follow the formula... but since all participants aren't party to the same allocation, it seems additional testing is needed. I intend on restating this to a class-based individual-level plan ASAP, but that doesn't help me for the Plan Year I'm inheriting. Thanks.
CuseFan Posted April 22, 2024 Posted April 22, 2024 If each location A and B satisfies coverage with respect to the total employer then if the allocation at each satisfies 401(l) you do not need to test further. Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com
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