FAQ 598: Budget--Cross-testing design giving very high percent to staff

Problem: My staff percent is so high, this design cannot be right!

Solution: Print the 401(a)(4) test to review the accrual rates pages and the rate groups on the General Test page. There are several things that could be happening: 1) There is a young HCE that is in Group 1 that is maximized at 415. This can result in a high HCE accrual rate that must be matched to the staff to pass a4. Often this is the child of an owner. 2) There is a lower paid HCE in Group 1 that is maximized at 415. This can result in an allocation of 100% of pay in a PS-only plan, resulting in a very high accrual rate that must be matched by the staff to pass a4. Often this is the spouse of the owner, who recieves compensation significantly lower than the comp limit. 3) There is an HCE in Group 2 along with the non-HCEs. Having both HCEs and non-HCEs in the same design group can cause unexpected results. The calculation is moving everyone in group 2 together at the same percent. It fails, then it increases the percent to pass, which also increases the HCE, then fails again. If it is an older HCE, the budget will solve, but it will take a significant amount of time. If it is a younger HCE, it may loop and never solve for the group 2 percentage.