410(b) For 401(l) Plan With Frozen Service But Has Pay Indexation

[Guest Paula F]

A 401(l) plan's benefit service was frozen on 7/31/98. However, participants receive compensation indexation to their termination date. Because this was a 401(l) plan, benefits testing under the general test has never been necessary, and is still not necessary even with frozen service.

For coverage, the ratio percentage test was met on 7/31/98, the date the benefit service was frozen. 1.401(a)(4)-13(d)(5)(ii)(B) seems to say that the plan meets meaningful on-going coverage since the ratio percentage test was passed at 7/31/98 (the fresh start date).

Others in my office thought that I would continue to have to meet coverage requirements on an annual basis, either with the ratio percentage test or with average benefits percentage testing. Some indicated that I would meet the average benefits percentage testing automatically using the projected method because each person's benefit accrual would be zero.

What do you think?