Coverage Testing

[EBDI]

Client has a safe harbor non elective contribution and an integrated profit share contribution with a last day provision. There is 1 HCE and 2 NHCE's. All 3 received 3% non elective. One NHCE terminated and does not get a profit share contribution. She worked over 500 hours. When calculating the ratio test, are both NHCE's counted as benefiting since they received the safe harbor contribution? Is there further testing that needs to be done since the two NHCE's received different contribution rates?

[Tom Poje]

I'll assume this is a profit sharing plan and not a voluntary benefit plan.

coverage only cares about :Did you get something?", not "how much"

so for the nonelective portion everyone received so plan as a whole passes.

but since you have different rates then further testing is needed.

the regs use the example of some people receiving top-heavy and other receiving the total contribution. usually this is not a problem because more than 70% of the NHCEs receive more than top heavy, so plan would pass on an allocation basis anyway.

you are not so lucky. might pass on an allocation basis and impute disparity, but that depends on how much was actually allocated.

if testing on an accrual basis, you would probably have to bump the one person up to the gateway (1/3 the HCE rate or 5%)

you can not impute disparity on the safe harbor piece.

[EBDI]

Sorry about the voluntary benefit plan. I didn't notice it until after I posted. The integrated profit share contribution is 14% plus 5.4% of 80% of the SSTWB. It looks like I will have to bump the terminated participant up to 5% gateway. Thanks for the advice.

[Tom Poje]

fortunately your topic title was enough to get my attention.

of course the 'extra' to bring up to the gateway is not safe harbor, so maybe vesting will come into play.