Four Step SSI

Hi, 

I am reviewing a profit sharing allocation and I have a question with regard to the four step SSI formula.  This allocation is not enough to go beyond step 1.  I feel it should just be pro-rata based on compensation, which is step 1 (3% of comp).  But the person who performed the calculation gave the owner pro-rata x comp + excess comp.  

Ex: comp 345,000 x 2.48% = 8,548 (excess comp is 210,119 (168,600 x .80 = 134,880 next dollar, then 345,000-134,881 = 210,119), so 345,000 + 210,119 = 555,119 x 1.54% = 8,548)

EEs: 27,000 x 1.54% = 415.80 

etc

I have an excerpt from the ERISA outline book but it only covers when you don't go past step 2 or 3, not 1.  But the example they give with not going past step 3 is you do pro-rata based on the comp for that step (which is comp + excess comp).  Step 1 is just comp. 

Thanks!

Is the Plan Top-Heavy?

If not, calculations you have look correct as everyone seems to be getting 1.54% of total comp and 1.54% of excess comp. Assuming these are all the employees. 

Of course assuming these are all the employees then yeah you are almost certainly top-heavy which is going to bring you back to pro-rata until you hit 3% of pay for the non-keys.

2 hours ago, Lou S. said:

Is the Plan Top-Heavy?

If not, calculations you have look correct as everyone seems to be getting 1.54% of total comp and 1.54% of excess comp. Assuming these are all the employees. 

Of course assuming these are all the employees then yeah you are almost certainly top-heavy which is going to bring you back to pro-rata until you hit 3% of pay for the non-keys.

Hi Lou!  Yes, it is top heavy, but everyone is deferring, so receiving a safe harbor match that covers that. 

I reread my post and I guess I wasn't entirely clear - sorry about that.  The example I gave above is what was calculated.  I think the owner should only be receiving $5,313, which is 1.54% of $345,000.  They gave the owner $8,548, which is 1.54% of comp + excess comp.  I think if they don't give at least 3% in that first step, then they don't get to bring in the excess comp yet.  Am I wrong thinking that?

I'll assume everyone is getting at least a 3% match to cover that t-h min since once you make additional employer allocations you don't get the "deemed not top-heavy exemption".

If that is the case then your original $8,548 (1.54% all, 1.54% excess) and $415.80 (1.54% all, no excess comp) looks correct. There is nothing magical about a 3% floor in an integrated plan unless you are trying to satisfy t-h with the contribution. The excess is limited to the lessor of the base percentage or 5.7% if you are using the TWB as the integration level.

It would be interesting for you to enter the numbers into this app I wrote a coupla decades ago, and see if it agrees that 80% + $1 is the optimal integration level:

https://benefitslink.com/site/inte-greater/

That is so cool!

@austin3515 It is pretty cool, I must say. I had written the program for fun before the web became a Thing, so it was almost an afterthought to put it online. I've never promoted it. It certainly could be improved (e.g., the ability to store the data so as to be able to rerun the program at some later date, or to adjust the employee census).

Do you have administration software for an integrated profit-sharing plan, and could you confirm that it produces the same allocations that my program produces (if you enter the same employee census data and whatever integration level the program ends up applying to that data)?