Carved Out Cross Testing

[Guest Sonia Kapoor]

Does anyone have an idea about what the new Carve Out Testing methodolgy involves ?

I have read the regulations which simply tells us that an alternative to the age groups testing is available provided the plan satisfy the Minimum Allocation Gateway.

But just how different are the two? :confused:

[Tom Poje]

if the plans allocation formula is not safe harbor (e.g. same $ or % to all ees [or with allowable permitted disparity]) then it must be cross tested.(of course, even target benefit plans are acceptable as well)

the gateway is required before even getting to cross testing the plans. the normal gateway will be 1/3 the rate of the highest % to the HCE. this gateway may be capped at 5%.

This minimum gateway may be avoided by having smoothly increasing rate bands - I think that must be what you are referring to. the most common example would be an age weighted plan, where each age increases by 1.085%. however, instead, you could increase each 5 years by 3% if you wanted. that is only a brief example, but you can not get out of the gateway begining in 2002.

[Guest Sonia Kapoor]

Hi Tom, thanks for replying .

The plans you are referring to are age weigted. The new Carve Out plans being talked about are based upon reducing the NHCEs concentration %age.

With the carve out cross testing, the main stumbling block you must pass is benefitting enough NHCEs under 410(B). You can count the total number of participants and get an NHCE concentration percentage. Then, your coverage percent of NHCEs can be reduced way below 70% - to about 23 or 22% as with the safe harbor.

Any ideas??

[AndyH]

This sounds interesting. Can anyone elaborate? Example?