General Test Question

Suppose an employer sponsors a 401(k) plan with a 25% match (non-safe harbor). This plan will fail the ADP and ACP tests for 2018. They will refund to HCEs.

They want to adopt a Cash Balance Plan and a Profit Sharing Plan for 2018.

The 401(k) plan, Cash Balance Plan and Profit Sharing Plan all pass 410(b) on their own using the ratio percentage test. All of the same employees will benefit in each plan.

For 401(a)4 and Top Heavy, can the 401(k) plan be tested on its own and the Cash Balance Plan and Profit Sharing Plan be tested together? Or must all 3 be tested together?

Thank you.

The 401(k) and 401(m) features must be disaggregated and tested separately.

If there is a profit sharing or other employer nonelective contribution happening in the 401(k) plan, then it may be permissively aggregated for testing with the profit sharing plan and/or cash balance plan.

The profit sharing and cash balance plans may be permissively aggregated for testing. It is not required however most common plan designs will not pass without being aggregated.

For top heavy, see the mandatory aggregation rules in the 416 regs. In particular, all plans which cover a key employee, or covered a key employee in the last 5 years, must be aggregated for top heavy. All plans which must be aggregated in order to pass coverage and nondiscrimination must be aggregated for top heavy.

and if your general test passes using average benefits, you have to bring the 401k and 401m contributions for that.

On 12/15/2018 at 2:38 PM, Dougsbpc said:

Suppose an employer sponsors a 401(k) plan with a 25% match (non-safe harbor). This plan will fail the ADP and ACP tests for 2018. They will refund to HCEs.

They want to adopt a Cash Balance Plan and a Profit Sharing Plan for 2018.

The 401(k) plan, Cash Balance Plan and Profit Sharing Plan all pass 410(b) on their own using the ratio percentage test. All of the same employees will benefit in each plan.

For 401(a)4 and Top Heavy, can the 401(k) plan be tested on its own and the Cash Balance Plan and Profit Sharing Plan be tested together? Or must all 3 be tested together?

Thank you.

Just one additional comment: why are we talking about ADDING a profit sharing plan?  A 401(k) plan IS a profit sharing plan by definition.  If you have plan that does not allow employer discretionary contributions but only 401(k) type deferrals and employer match, all you  need to do is "turn back on" the profit sharing piece.  There is no need for a separate plan (except to increase fees). A Cash or Deferred Option (go read what it says at IRC Sec 401(k)) is simply a feature that is added to a profit sharing plan.