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Old 01-03-2014, 04:37 PM
raintrain raintrain is offline
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Default 401(a)(4) question

Sample DB Plan:

HCE 1: 10% avg comp per year of participation
HCE 2: 8% avg comp per year of participation
NHCEs: 0.5% avg comp per year of participation

The plan is cross-tested with a DC plan in order to pass testing.

Currently, the plan has about $500k assets and $350k liabilities.

Question: Does amending the plan to increase both HCE 1 and 2 to 15% and 12% respectively, but not giving an increase to the NHCEs in the DB Plan violate 401(a)(4) as it appears to discriminate in favor of the HCEs? It will require a larger contribution to the PS plan in order to pass testing.

It appears to me that it would, but if the NHCEs receive a larger contribution in the DC Plan, maybe that would be sufficient to say that the amendment did not discriminate in favor of the HCEs.

Any thoughts on this, or if you've run across this problem before, would be greatly appreciated. Thanks in advance.
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Old 01-03-2014, 09:59 PM
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douglan douglan is offline
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Potentially a tricky question. If I recall, the IRS says that whether a plan amendment discriminates in favor of HCEs is a "facts and circumstances" test...which in IRS-speak means that they could second-guess you if they catch it upon audit or with a determination letter application. Recommend talking with company's ERISA counsel. The fact that the DB and DC plan are aggregated for testing may give you some more flexibility.
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