401(a)(4) General test - cite needed for Average Benefit Percentage Te

[John A]

Can anyone provide a cite for me that says that when the profit sharing contributions of a 401(k) plan are being tested for nondiscrimination under 401(a)(4), the Average Benefit Percentage test is done using elective deferrals and match? I know that the rate groups are determined using only profit sharing contributions and forfeitures, and the average beneft percentage test is done using those plus deferrals and match, but I cannot find where in the regs, Code or other guidance this is explained. Can anyone point me to the right place in the guidance?

[Mike Preston]

Only the IRS could have come up with the "curvy" logic.

With that said, what you are looking for is very specifically defined in 1.410(B)-7(e). In that section, you will find the definition of testing group. Testing group includes all plans that COULD be permissively aggregated as defined in 1.410(B)-7(d). -7(d)(2) basically says you use the disaggregation rules of 1.410(B)-7©. -7© says you can't aggregate 401(k) plans or ESOP's (amongst a few others). So, if that is as far as one reads, one will come to the wrong conclusion.

At the end of 1.410(B)-7(e) there are three exceptions noted. The third exception is the one that gets us where we want to go. It says that we apply the rules of -d(2) by ignoring the disaggregattion rules of ©(1) [401(k) plans] and ©(2) [ ESOPS].

Does that help?

[John A]

Mike,

Yes, that helps a lot. So that explains why the Average Benefits Percentage Test uses deferrals and match. Now where does it say that the rate groups are determined excluding deferrals and match (profit sharing and forfeitures only)?

Thanks for you help. It is much appreciated!

[Mike Preston]

It is basically the same sections already cited. Note that in determining the ABT testing group, one had to have an exception to the exception. Without that second exception, the 401(k), 401(m), ESOP, et. al. are excluded from aggregation under 410(B). QED.