What is reported if plan passes ratio test but has to use average bene

[John A]

How should a 5300 and 5500 be completed for a plan that passes the 410(B) ratio test but must use the Average Benefits Test to pass the 401(a)(4) general test? For example, consider a cross-tested plan that provides a profit sharing contribution to all participants, but in which at least one rate group passes only by virtue of the nondiscriminatory classification test and the average benefit percentage test. Does this plan complete the 5500 Schedule T indicating that the plan passes coverage by the ratio test or by the average benefit test? Does this plan complete the 5300 (line 13) saying Yes - plan passes the ratio percentage test, or No - plan does not pass ratio percentage test? Should or must a Schedule Q Demo 5 be done to show the Average Benefit Test, or is it enough to just do Demo 6 (the general test demo - which might need to include the Average Benefit Test)?

[Tom Poje]

the 5500 is only used for coverage, it has nothing at all to do with cross testing.

think of it this way. your cross testing is part of the (a)(4) test - which is your amounts testing. The ADP test is the same thing. You dont provide those to the DOL, so in the same way you don't provide the cross testing info. obviously you need it if you ever got audited, but you would need the ADP/ACP test as well.

[John A]

Tom, that answers the 5500 portion of the question - thank you.

What about the 5300, Schedule Q and Demo 5?

[Mike Preston]

I agree with Tom. In answer to your second question, just do the Demo 6 and, if necessary, display the results of the ABT, but don't refer to it as Demo 5. The industry went round and round with the IRS on Demo 5/Demo 6 stuff a while back and the IRS now accepts it this way. At least, they did the last time I submitted one! But you never know whether you will get a reviewer that may not be up to date on this particular issue, so be prepared to respond to a request for clarification or a request for Demo 5. A brief conversation should provide the clarification.

[John A]

Thanks, Mike!!! That's what I needed to know. It's great when someone has some experience with the point in question.

[Laura Harrington]

Does anyone know if this is still the case? If the plan satisfies the coverage requirements using the ratio percentage test, but has to rely on the average benefits test to pass the rate-group test, can I just do the Demo 6 submission?

This is my first Demo 6 (or 5 for that matter). The plan is spinning out from a multiple employer plan and the legal counsel for the multiple employer plan is requiring the plan to be submitted for a determination letter and to submit for a Demo 5 and a Demo 6 before they will transfer assets.

Makes no sense to me since the plan is restating into our volume submitter doucment, passes the ratio percentage test with ease and has been a cross-tested new comparability plan for several years. A lot of make work for nothing in my opinion!

The instructions for the Demo 5 say it is not available for plans that satisfy the ratio percentage test. I do not want to include the Demo 5 if it is not even needed.

Thank you for your help,

Laura