Accrued to date testing method

[Guest Scott McHenry]

Cross Tested 401(k) PS and DB Plans

I am using the accrued to date method to calculate the EBARs and rate groups.

The rate group ratios are greater than the midpoint of safe and unsafe harbors.

When showing that the average benefits ratio is greater than 70% in order to use the midpoints in the rate group ratios, how is the average benefits ratio calculated?

1. Considering current year contributions and accruals only

2. Considering contributions and accruals for the same period as used in calculating the rate group EBARs

3. Either of 1 or 2

[AndyH]

I'm not certain of this, it's just my read of it and others should comment.

1.410(B)-(5)(d)(5)(iii) seems to say you must be consistent among employees and plans, but then (e)(2) seems to say that you can separately determine the employee benefit percentages using different methods (as itemized in that section) provided that the differences don't result in a significantly higher average benefits percentage.

So, that's a start to this discussion. Good question.

P.S. maybe I read too much into the question. Clearly you can do 1 or 2; my question is whether you could do the annual method for the dc and the accrued to date for the db, or vice versa.

[jaemmons]

You would use current contributions/benefits of all plans of the employer, including forfeitures reallocated, exclusive of any after-tax contributions. In determining the ABP, you can use either contributions or convert the contributions to benefits, as you do in the EBAR calculation. The benefit conversion, generally, will yield better BP's, especially if you have a younger NHCE workforce. Of course if you throw a DB in with this determination, you complicate the calcs.

As AndyH stated, you may want to review Reg 1.410(B)-5.

[Guest Scott McHenry]

Thanks for the responses.

In reviewing §1.410(B)-5, I came up with the following to support the position that either current year only or current and prior years contributions and accruals can be considered for this purpose:

§1.410(B)-5(d)(5)(i) - The employee benefit percentage for an employee for a testing period is the rate that would be determined for that employee for purposes of applying the general test for nondiscrimination in §1.401(a)(4)-3 (among other sections)

§1.401(a)(4)-3(d)(iii) - allows measurement periods of either the current plan year or the current plan year and all prior years.