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Cross-Tested Plans Overview

What is a Cross Tested Retirement Plan - Retirement Strategies LLC
A Cross-Tested Plan is a form of a Profit Sharing Plan where allocations are based on both age and compensation and allows for different allocation rates among different classes of employees (new comparability plan) or is allocated in a manner that solely takes into account age (age-weighted plan).

A cross-tested plan requires a custom document and is subject to complex nondiscrimination requirements.  Due to this, administrative costs can be significantly higher.  However, where cross-tested plans are a good fit, the added benefit will far outweigh the added costs.
Who May Adopt?
Employers of all sizes.

Employee Eligibility Requirements
Maximum Requirements: Age 21 and 2 years (1,000 hours per year) of service.  Less restrictive requirements are allowed.

Employee Deferral Contributions - Employer Matching Contributions
Cross-tested plans can be combined with either a 401(k) or a safe-harbor 401(k) plan.  Deferral and match contributions are subject to the same limitations as those types of plans.

Employer Profit Sharing Contributions
Formula based on either new comparability or age-weighted formula.

Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages.  Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).

Contribution Deadlines
Employee deferral contributions must be deposited by the 15th business day following the month of deferral, or sooner if administratively feasible - the DOL has indicated that contributions made within 7 days will not be considered late.  Employer contributions must be made by the employer’s tax filing deadline, including extensions.

Vesting Schedule
If a two (2) year eligibility service requirement is elected, employer contributions are 100% vested immediately.  If a one (1) year or less eligibility service requirement is elected, employer contributions may be subject to a vesting schedule which must be defined in the plan document.

Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement.  Plans may elect to allow hardship or in-service withdrawals.  Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.

Administration & Reporting Requirements
Top-heavy and non-discrimination testing required.  Form 5500 filing required.  Fidelity Bond required.
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