"16 participant plan - 4 HCEs (2 older husband+wife, 2 teenage sons of owners, 18 and 16) and 12 NHCEs (various ages)
Plan provides 401k, Safe Harbor Match and discretionary Profit Sharing by rate group (each participant is in own). There is a 12 mos/1000 waiting period but no minimum age, no minimum hours for allocation or last day required. The sons started working during covid due to difficulties with staffing... and here
we are. The plan is top heavy.
The Gateway is 5%. However, the sons enter mid-year and Keys are included in top heavy minimum, making their effective allocation rate when including the top heavy about 5.8%.
I would like to restructure for (a)4 testing:
- 2 HCEs (older) and 6 NHCEs (youngest) based on cross-testing, and,
- 2 HCEs (teenage sons) and 6 NHCEs (oldest) based on allocation rate
CROSS TESTING COMPONENT:
Cross Testing Rate Group 1 includes HCE husband plus HCE spouse and all 6 NHCEs*: coverage is then (6NHCEs/12NHCEs) / (2HCEs/4HCEs) = 100%, correct?
Cross Testing Rate Group 2 includes HCE spouse and 5 NHCEs*: coverage is then (5NHCEs/12NHCEs) / (1HCE/4HCEs) = 166%, correct?
*The NHCEs EBARs are at least as great as the older HCEs
ALLOCATION RATE COMPONENT:
I assumed the Plan must provide 5.8% Profit Sharing to all NHCEs due to the top heavy "skim" increase for the sons described above. Q: could this increase to 5.8% PS be limited to just the portion of NHCE staff that is included in the Allocation Rate Component testing?
The Allocation Rate Group** includes both HCE sons plus all 6 NHCEs: coverage is then (6NHCEs/12NHCEs) /
(2HCEs/4HCEs) = 100%, correct?
**The Allocation Rate is the same 5.8% PS for the 2 young HCEs and 6 oldest NHCEs
Q: Based on the above, the Plan passes, correct? Am I forgetting anything? Any need to satisfy average benefit test for cross-tested portion?
Q: While the sons did not contribute 401k in 2021, could they theoretically since it is a Safe Harbor 401k? Going forward, I
realize the NHCE number will flux and thus can not always rely on the bifurcated testing but for the years where the numbers are there (i.e. sufficient NHCEs), is there any risk otherwise?