DB testing issue

[Guest jig100]

An employer maintains a defined benefit plan for the benefit of certain employees. The plan benefits 50% of the nonexcludable highly compensated employees and 50% of the nonexcludable nonhighly compensated employees. The plan benefits more than 40% of the employer's employees and satisfies the ratio percentage test by covering at least 35% (70% x 50%) of the nonhighly compensated employees. The plan provides a uniform formula benefit for all participating employees. The question is whether this plan may satisfy Section 401(a)(4) under the uniform safe-harbor, or whether it must do general testing because it has excluded some nonexcludable employees.

[david rigby]

There is nothing in IRS Reg. 1.401(a)(4)-3(B), which defines the DB safe harbor, that references coverage. That is IRC 410(B).

[AndyH]

Right, and to clarify, the fact that it excludes some people is not a 401(a)(4) issue, it is a 410(B) issue, so the applicable test is a coverage test under 410(B), and based on what you've said you have a ratio/percentage of 100% so it is an easy pass.

If I understand what you are saying you are covering 50% of nonexcludable NHCES and 50% of nonexcludable HCES, so you have a ratio percentage of 50/50=100%.

For 401(a)(4), you must see if it satisfies one of the safe harbors.