Average Benefits Test - Multiple Plans

[Guest Victoria Pelletiere]

I have a controlled group of 3 companies. All 3 are have defined benefit plans (1 year wait, NHCEs); all 3 have 401(k) plans (immediated entry, NHCEs, no match); 1 has a profit sharing plan for HCEs only.

To determine the maximum profit sharing allocation, I run the ABT. With just the DB and PS plans, the rate is 10%. If I add the 401(k) amounts for the DB participants, the rate increases to 12%.

Must I add all the 401(k) participants to the test - even those who have a $0 benefit?

Are there any other considerations for boosting the PS allocation?

There are approximately 1000 employees combined. The DB active participation count totals 600. That leaves about 400 employees who have not met eligibility for the DB plan. Approximately 40% of the employees contribute to the 401(k) plan.

Thanks in advance for your help!

[Tom Poje]

you said a mouthful, but you have a couple of different options.

all plans must be included in the Average Benefits Percentage test, so there is no option there whether to include or exclude the 401(k).

however, you are allowed to test the DB plan separately from the DC plans. In that case, the DC plan is tested using the allocation method.

you could also test the 'otherwise excludable' separately...that is, run 2 tests - everyone with more than 1 year of service and anothet test with those with less than a year. (That is a rather simplified explanation, there are other factors involving entry dates)

Remember, there is a difference between the average benefits test and the average benefits percentage test. make sure we are talking about the same thing.

[Guest Victoria Pelletiere]

Thanks for your response.

I am running the average benefits test. I will split the 401(k) plan participants into the 2 groups. With the DB benefit and the 401(k) contributions for participants in both DB and 401(k) plans, the average percentage is 12%. With that amount, the HCEs can receive 15% (or is it 12%) in the profit sharing plan.

I want to aggregate the DB with the 401(k) plan because the DB benefit is more valuable than the average allocation 401(k) rate. Is there anything else for me to consider?

[Tom Poje]

just to make sure:

you have 3 DB plans. each must pass minimum participation on its own

you have 3 401(k) plans. You can aggregate for ADP test, but then you also have to aggregate for coverage.

you only have 1 profit sharing and that is for HCEs only. Therefore based on your notes, you are aggregating the nonelective portions (DB and ps) to see if you pass testing.

for the average benefits test you will have:

1. average benefits percentage test which will include everything

2. nondiscrimination classification test - deferrals not included.

in addition to the above, you are allowed to split the groups into 2 - those with more than 1 year and those with less than 1 year. since the group with less than 1 year most likely has no HCEs, that portion automatically passes.

[Guest Victoria Pelletiere]

Thank you for clearly stating the issue and for your reply. I'm keeping a copy in the file.