Our company excludes the son in our documents to remove the negative impact of a young hce receiving an allocation in 401a4 testing.
I believe we should make children their own rate group and give them a 0% allocation to help our testing further with a 0% allocating to an HCE under 401a4.
My colleague believes the IRS would not approve of my strategy. What are your thoughts?
Thank you
Full Version: Excluding Son of HCE vs. 0% allocation
Oops. I deleted Tom's reply by accident. Sorry.
QUOTE (AndyH @ Dec 12 2005, 07:08 PM) 
Oops. I deleted Tom's reply by accident. Sorry.
Can you put his reply back up?
basically it goes something like this:
whether you exclude the son from the plan, or put him in his own rate group at 0%, the effects are the same (if he has completed the plan's eligibility requirements - he counts as a 0.
if the plan has deferrals there is a slight difference - if not excluded from the plan he shows as a 0 on the ADP test.
if excluded from the plan, he is not on the ADP test, but he shows as includable and not benefiting for coverage, a good thing for 401k coverage test - though that is rarely a problem.
assuming such plan is a class plan, if the class is defined as 'owner' he is treated as an owner and would receive whatever % the dad gets, so you have to be careful of document language.
if son is a 'short term' employee, then indeed the IRS would probably frown on such a strategy (e.g. plan has immediate eligibility to get him into the plan but he never ever works 1000 hours andd gets a 0 contribution)
if plan is top heavy, he would get top heavy unless plan excludes key employees. be careful!
whether you exclude the son from the plan, or put him in his own rate group at 0%, the effects are the same (if he has completed the plan's eligibility requirements - he counts as a 0.
if the plan has deferrals there is a slight difference - if not excluded from the plan he shows as a 0 on the ADP test.
if excluded from the plan, he is not on the ADP test, but he shows as includable and not benefiting for coverage, a good thing for 401k coverage test - though that is rarely a problem.
assuming such plan is a class plan, if the class is defined as 'owner' he is treated as an owner and would receive whatever % the dad gets, so you have to be careful of document language.
if son is a 'short term' employee, then indeed the IRS would probably frown on such a strategy (e.g. plan has immediate eligibility to get him into the plan but he never ever works 1000 hours andd gets a 0 contribution)
if plan is top heavy, he would get top heavy unless plan excludes key employees. be careful!
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