Basic X-test question....

Doing a proposal:

I have this plan... all of the EEs are HCEs except for a couple of NHCEs that don't work more than 1,000 hours (at this point)

I put the owner in group 1, the other HCEs in group 2 and the NHCEs  in group 3.  (Remember, Group 3 typically don't work 1000 hours so they aren't eligible for the NEC)
I made the owner max out, gave the other HCEs nothing and as I said, the NHCEs just aren't eligible (at this time).   Ran the general test and it passed.  

Great huh.... or am I missing something?  

If I'm not missing anything then all I need to worry about in the future is if an NHCE works more than 1,000 hours they need to get a contribution

Thanks

If top-heavy, the non-key HCEs need to get a 3% top-heavy minimum.

To be clear.... you don't have any NHCE eligible for the PS at this point? 

Because not eligible is different than not getting PS.

Why group instead of "each in their own group"?  I've found each in their own group has been a more sane approach.  Plus you get options to help pass.

1 hour ago, Mr Bagwell said:

Why group instead of "each in their own group"?  I've found each in their own group has been a more sane approach.  Plus you get options to help pass.

I will in the end... I just happened to do it this way to see what might happen

1 hour ago, CuseFan said:

If top-heavy, the non-key HCEs need to get a 3% top-heavy minimum.

True, and the plan will most likely become TH eventually.  
IN that case, the non-key HCEs  would only need to get the 3% TH minimum... no 5% gateway test, right?

Yes, only benefiting NHCEs need to get gateway.

Have these non-key HCEs accumulated balances such that it's not top-heavy (yet)? 

17 minutes ago, CuseFan said:

Have these non-key HCEs accumulated balances such that it's not top-heavy (yet)? 

Yes.  The plan was established in 2023 and so far only deferrals have been made.  So far the plan is 39% top heavy

Big question... IF the plan is solely HCE employees and we only allocate an NEC for the owner, will that pass?  Does that work? (and I get, once the plan is TH which will be the following year probably we will need to give all eligible EEs a 3% TH minimum

If the plan only covers HCE (no NHCEs eligible or required to be in coverage testing) you can discriminate against one HCE over another, assuming the document allows. If the Plan is not Top-Heavy, then you could give the allocation just to the Owner like you propose and it will pass testing as the plan does not cover any NHCEs. You'd just need to be mindful of other limits like the deduction limit, 415 limit and top-heavy minimum should the Plan become top-heavy.

That's great!  So the owner can discriminate against the other big shot high earners who are not key employees.  But when the plan becomes TH (which it will) he has to give them (the HCEs) a 3% minimum if he makes an NEC for himself.  In the end he is saving 2% because there are no NHCEs.  

Make sense?

True, but even if there were NHCEs, that doesn't meant the other HCEs get 5, they'd still only get 3.

So just to be sure:  the NHCE NEVER worked more than 1,000 hours and NEVER qualified for the profit sharing component of the plan?

On 4/26/2024 at 10:30 AM, BG5150 said:

So just to be sure:  the NHCE NEVER worked more than 1,000 hours and NEVER qualified for the profit sharing component of the plan?

Yes.  But I am being told that for 2024 they (IDK how many) will probably go over the 1,000 hour mark.  And that would mean that any who do would enter 1/1/2025 so for 2024 the NHCEs would not  be eligible.

Circling back to this plan... And I appreciate everyone's help immensely.

Here it is... full disclosure:

8 employees comprised of:

   Owner (100%) - earns 500K+
   Daughter 1 - earns 60K
   Daughter 2 - earns 30K
   HCE 1 - earns 500K+
   HCE 2 - earns 500K+
   HCE 3 - earns 500K+
   HCE 4 - earns 500K+
   NHCE 5 - earns 30K

First... ownership attribution is lineal... Dad is the owner so each daughter owns what he owns (100%).  That makes them HCEs, correct?
Second... HCE 1-4 all earn 500K+ which makes them also HCEs, correct?
Third... NHCE 5, if she works 1,000 hours or more will be the only one who will be required to get a contribution in the Xtest allocation.  That is to say, if Owner decides to give himself an NEC, she will be the only one who must get a NEC.
Forth... Once the plan is TH then all HCE EEs will need to get the 3% TH allocation

Am I making sense?  Is this a no-brainer?  Works out pretty good for the owner

It does look like you'll have 7 HCEs and 1 NHCE (when she meets eligibility). 

The NHCE essentially has to end up in everybody's rate group, if you're cross-testing.

Just make sure the earnings for the HCEs are prior year since that's how the status is determined.

2 hours ago, Bill Presson said:

Just make sure the earnings for the HCEs are prior year since that's how the status is determined.

Yup!  Thanks for your help.  I know all this but don't deal with it every day. Tend to second guess myself.   With time it will become second nature with experience.  

Remember to check the plan document to make sure the plan does not use the Top Paid Group election to determine the HCEs.

Eligibility question for you.......  What are the eligibility requirements?

Got it, the plan was established in 2023.  When was the NHCE hired?  Before or after the plan was established?

On a side note.... I think 2024 will be an important year to get this plan off on the right foot.  Sounds like 2023 and 2024 are not TH.  This is good.   When the NHCE becomes eligible, I don't see a path to passing the ADP unless the NHCE defers a large %.    Don't see that happening at 30k salary.  Are the HCE's deferring decent percentages? Maybe a QNEC is the best play to pass ADP?  When this pops to TH, does the Employer understand the 40k plus in contributions commitment (based on a rough estimate of 2024 salary cap of 345,000) to the Non-KEY? 

I would lean to a SH 3% plan with no PS for a year or two.  Let this plan settle out.....   Yeah, you could cut out the HCE from the SH, but will the HCE be happy when they find out they could be getting 10k plus from the Employer and not getting it?  You could at least pass ADP with this scenario, but if the Employer does PS, the TH comes back in for the Non-KEY highly paid.

There is a lot of communication to be had with this plan.  It becomes more complicated the more I think about it.....