Bruce1 Posted September 22 Posted September 22 I feel like this is a dumb question. With a new comparability profit-sharing allocation for a safe-harbor 401(k) PSP. Would you still need to test the average benefits test, rate group and gateway for a pro-rata allocation to all eligible participants?
Mleech Posted September 22 Posted September 22 Just to clarify, you're saying that the plan document describes a New comparability formula (employee individual group allocation), but the sponsor wants to do a pro-rata spread?
Lou S. Posted September 22 Posted September 22 Just test it on an allocation basis instead of a benefits one. Everyone will get the same percentage and be in the same rate group. Unless you have a ton of turnover and fail the ration percentage test due to last day requirement or some other odd scenario. Belgarath 1
Popular Post C. B. Zeller Posted September 22 Popular Post Posted September 22 Because the plan document specifies a new comp allocation, which is not a safe harbor formula, you have to satisfy the general test (aka the rate group test). However if you calculate your rate groups on allocation rates, instead of on accrual rates, then everyone should be in the same rate group and the test should pass easily. You don't need the gateway because you're not cross-testing. You also don't need the ABPT unless your rate group is less than 70% coverage (which is unlikely to happen, unless, as Lou mentioned, there is an allocation condition that isn't met by a large number of NHCEs). David D, justanotheradmin, Lou S. and 2 others 4 1 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co
justanotheradmin Posted September 23 Posted September 23 the term new comparability is used in a variety of ways, but for your situation, you should pay attention to C.B. Zeller. Precision of language is important when talking about these tests and allocation methods. General test, rate group testing, ABPT, coverage, cross-testing, all refer to different things. Cross testing is specifically the idea of testing Defined Contribution benefits on a Defined Benefit basis. Or Defined Benefit accruals on a Defined Contribution basis (but that is far more rate). New comparability is a similarly used term. That's not what you are doing here, and everyone being in their own group or getting custom amounts does NOT require the use of cross testing. As mentioned above, general testing on an allocation rate (DC) basis is fine to use. I'm a stranger on the internet. Nothing I write is tax or legal advice. I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?
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