FAQ 975: Allocations--Differences between B-4-Tiered and 3-On Compensation (Integrated plans)


When running a TH PS allocation that is integrated, I don't see any difference between 3 (on comp) and B (4 tier) for the allocation method if the plan is coded as TH. I get the same results either way. Am I missing something as to when one or the other would be used?


The allocation methods are different and you should use the method that the plan's document dictates. The allocation method is just that, a method to allocate the contribution that shows on the "Show Total Contribution" screen. It is not the amount it is how to allocate. If the amount you allocate is less than top heavy there are alternate methods we use to alert you to that fact, for example, we usually post a message or warning in the White Calculations window and you can print the Compliance Report for Top Heavy.

It would depend on the dollars being allocated on making a difference in these two calculations. They can potentially be the same allocation with the following very important notes:

3-On Comp with Parameters: allows you to code integration The allocation is offset for top heavy source coding from the TOPHMINM screen. The allocation is a straight "basis" of 5.7%, then 5.7% of excess of TWB, then any additional contribution pro-rata". Top heavy will be allocated and met first. You should always run the 416 Top Heavy Min. Calc. under Reports-Compliance. The system will post to the EMPLOYER Balance and Excess fields unless it is meeting top heavy with the allocation for this participant and in such case it will show the amount under the field EMPLOYER Minimum on the CONTRIB screen.

B-4-Tiered: Should be dictated by the Plan's Document. There is some specific coding that must be setup in order for the B-4-Tiered method to allocate. This option method does not offset for top heavy source coding from the TOPHMINM screen. The "Force Forfeiture" option must be coded as 'No' and the "Forfeiture Allocation Method" must be coded as either '3 - Added to Source Contribution' or '4 - Reduce Source Contribution'. There is no Top Heavy allocation being incorporated outside of this defined allocation method. Therefore, if the groups coded are 34 and 1000 hours than potentially some participants with hours less than this requirement will be excluded from an allocation and top heavy is not being met. Therefore, the "Hours" coding needs to be coded as '1'. The first 3% is posted to the EMPLOYER Minimum field on the CONTRIB screen. The allocation is 3%, then 3% of the TWB, then 2.7%, then 2.7% of the TWB, then any additional contribution pro-rata. The parameters screen should have the Pct of Pay coded - additionally when the system has calculated numbers, the bottom field gets populated. "Calculated Excess Percent of Pay".

As a reminder, always run the 416 Top Heavy Min. Calc. under Reports-Compliance to determine if the Top Heavy Minimum is being satisfied to eligible employee.