In Plan specs and in nondescrim testing assumptions, there is an option to choose nearest birthday or last birthday. Can anyone tell me which is the best choice to use for crosstesting?


I think that in Plan specs, Plan Entry Requirements, I want to follow the document for Plan Entry. And I think I want age nearest in testing assumptions for Cross testing. Any thoughts?

this is another one of those helpful 'tricks' in cross testing.
but instead of directly answering your question, lets put it in the form of an exanmple and see if you can determine what the effect will be.

Employee 1 Employee 2
Plan year end 12/31/2003 12/31/2003
DOB 5/31/1943 8/31/1943
Actual Age 60 yrs 7 mths 60 yrs 4 mths
Yrs to age 65 4 yrs 5 mths 4 yrs 8 mths
If expressed in whole years:
4 yrs 5 yrs
Employee 1 has one less year to retirement!

Now, for the quiz: (I think people learn more and remember it better by solving some of this stuff)

1. if your pre retirement interest rate assumption is 8.5%, what do you think this will do to the E -BARs?

2. if the HCE is born in the first half of the plan year (PLAN year, not calendar year) would his E-BAR be greater than, less than or equal to a similar employee born in the 2nd half of the plan year.

3. what is your conclusion about selection of nearest vs last.

1. The ebar for EE2 will be increased (one extra year for projecting at 8.5%)
2. Based only on birthdate, it would be lower (one less year for projecting at 8.5%)
3. Your demographics will dictate which is better: attained age or nearest age.

so in answer to the question, if the HCE(s) are born in the first half of the year as compared to NHCEs then it is probably better to use age nearest.
If the HCEs are born in the second half of the year, attained age is probably better.
Suppose you have a number of HCEs, and one of them fails rate group testing, but barely. well, it might make a difference whether you used age nearest or age attained. this is an assumption and is not document driven (at least at this time)

Thanks, Tom