Is there anything wrong with defining rate groups as follows:

Rate Group 1: owners
Rate Group 2: non-owner HCE who defer statutory max deferrals
Rate Group 3: non-owner HCE who do not defer statutory max deferrals
Rate Group 4: All others

The owners have agreed to fund non-owner HCE up to $30k per year ONLY if they make max deferrals

They do not want to give it to a HCE that does not defer the max each year

I want to add that the $30 per year includes the max deferral
(meaning they will give out $18k in '03, as an example)

I do not believe that the groups referencing deferrals are acceptable. There is a requirement that no contributions, other than matching contributions, be based on deferrals (cite not handy). These rate groups would violate that requirement.

I am not sure though how you would structure the groups based on the owners' intent. Their intent is a clear violation of the rule.

I'm not sure I like the definition of "Rate Group". "Allocation Group" maybe, but not "Rate Group."

Assuming you want separate allocation groups for all HCEs why not just state that all HCE's are in their own allocation groups? How the decision is made with respect to who gets what is not something that needs to be defined. If it isn't defined, then it MIGHT not violate the contingent benefit rule that Blinky mentions.

If they really want to "tie" the contribution to the deferral then it must be a match. If it is a match it is tested as a match, along with other matches (unless it is a qualified match, in which case it can be aggregated with deferrals and tested there).

Seems you can get to where you want to go, you just need to decide what rules you want to live with.

Or call them "Deferral Groups" to avoid any ambiguity.

Sorry, couldn't resist.

It's been a bad day (please don't take a picture). [REM]

Yeah, that's the ticket! :groan:

I really don't understand why the owner would care what the HCEs defer. If they max out on their deferrals, that's only going to hurt him in the tests (ADP and ABT.)

And I agree, a contribution that is contingent on a participant making certain deferrals is a match.