Cross-Testing and the ABT test

[Guest lforesz]

Maybe a stupid question, but the more I do this stuff, the more I forget. Plan has 1 YOS for PS and immediate for 401(k). Plan is top heavy so employees with less than 1 YOS receive minimum 3% top heavy only.

Please confirm that when running the cross-test, I do not include the less than 1 YOS people, because they are not benefitting under the PSP portion of the Plan. However, they are included in the ABT, so that the ABT may have 500 NHCEs and the cross-test may only have 350. Is that correct?

Thanks for anyone and everyone's help.

[Tom Poje]

I believe the example that was beat into me applies:

1.410(B)-6(B)(4) examples

#2 for purposes of the ratio percentage test or nondiscriminatory classification test those not meeting the eligibility are excludable

#3 for purposes of average benefits percentage test include all

good examples, if someone hadn't pointed out to me one applies to the one test and the othert applies to the avg ben % test I don't know if I would have seen it.

[Blinky the 3-eyed Fish]

Note, however, that if you choose to disaggregate the otherwise excludable employees, you could choose to not count them in the ABT. I say choose not to count them because there are differing opinions as to whether the otherwise excludables should be excluded or included in the ABT when testing the statutory employees.

[Mike Preston]

Yes, there are differeing opinions. However, those that say you include the statutory excludables in the ABT when testing 410(B) on a disaggregated basis are wrong. ;-) Even the IRS has changed their position on this.

This has been discussed quite a bit on this board. I suppose I should have the link to the long message I posted a while back which details the support for the above conclusion. Maybe somebody else saved it?

[Guest Tbrown]

I agree Mike. We have also used this same logic to not allocate safe harbor contributions to those that haven't met the statutory requirements but are able to defer due to there not being a service requirement for 401(k).

[Mike Preston]

Here's the thread with the first post about it:

http://benefitslink.com/boards/index.php?showtopic=12907

There is also a post somewhere that talks about how the IRS has informally changed their position. I think it cites a Gray Book response which conforms, a bit better, to the rationale cited in the thread referenced.