ABT-Imputing Disparity

[Guest dietpepsi]

I am trying to determine if I can impute disparity while doing an ABT if the plan is already integrated. I cannot find anything that says I can't or I shouldn't. Any opinions? Does anybody have anything great they could quote me? Thanks

[Guest dietpepsi]

I'm going to try moving this one to the top again because it's really a bug in my side. I'm writing business definitions for the average benefit test and the general test. I'm trying to determine if a plan has an integrated formula, can I impute disparity when completing an ABT or general test? I've looked through 20 years worth of notes and come up with conflicting information. I can't find anything that directly addresses this question in any publications. So let's say for example, I have a staight profit sharing plan, allocation is integrated and only goes to those active on the last day of the plan year. I fail the ratio/percentage test. Can I impute disparity on the ABT? In a different situation let's say the employer gives an integrated formula to his Chicago location but his LA location gets comp to comp. Can I impute disparity in the general test? Thank you!

[Tom Poje]

look at examples 3 and 4 of 1.401(l)-(5)(B)(9)

the plans have integrated formulas, and imputed disparity is desired for 401(a)(4) testing.

for a 10 point bonus, read the examples and report back your findings.

[Guest dietpepsi]

Based on the examples I'm pretty well convinced not to impute disparity when doing a general test on a plan that meets 401(l). But I still don't know about an ABT. I can't find anything that says that I cannot, but it doesn't seem right that I would. I don't want to cheat a customer out of a passing test if I don't have to.

[Tom Poje]

good, you looked it up! now, as for the conclusion...

lets look at example 4

Plan M - a 401(l) plan, implies that it is integrated, lets say 5.7%

Plan N - subject to general test, so must be odd formula

It is desired to impte disparity under Plan N

to quote the cite

"Employee B's imputed disparity fraction under Plan N is therefore 1, and plan M provides no disparity for employee B for the plan year"

conclusion:"As a result, Plan M provides disparity that is neither uniform [EE B got no integration in M while others did, which is certainly not uniform] therefore Plan M does not satisfy section 401(l)"

ok, then point (B) says

Assume instead Plan M provides that the annual disparity must be satisfied without reducing the disparity provided for an employee under Plan M, therefore requiring reduction in the employee's disparity fraction under another plan....Imputing disparity with respect to Employee B would not be allowed under Plan N."

Note: it says it is not allowed under plan N, it says nothing in regards to Plan M. or put another way, you have imputed under M and used everything up.

This example probably would have been better if it said 'the plans are not aggregated for testing' In other words, you can't integrate one plan, then test the other plan separately and impute disparity.

Go back and look at example 3. in this case, the example clearly says the plans are aggregated to form a single plan. In applying the general test, the plan imputes disparity, so imputing disparity is not a problem.

perhaps if you tried the following, it might help.

Try testing an integrated plan (at 5.7%) on an allocation basis.

The E-Bars will all be equal when you impute disparity. You would expect that since the plan is a safe harbor. In other words, because you imputed disparity you are cancelling out the effect of the integration giving the HCEs a greater rate of contribution.

[Guest dietpepsi]

I've really made an effort to try to make heads or tails out of this but I'm not having much luck. It's still over my head. Will anybody be available to discuss at the LA Benefits Conference? Going back to my original question, I need to know if I should or should not impute disparity when doing an ABT or general test if my allocation used an integrated formula. Is the answer black and white and I'm missing it by a mile or is it vague, therefore, it's no wonder I'm confused?

Thank you!

[Mike Preston]

It is very clear that you are allowed to impute disparity on any contribution other than some very speciric contribution types. The one you mention is not one of those very specific contribution types. You can therefore impute permitted disparity.

I'm not aware of anything that allows imputation of permitted disparity for one purpose but does not allow it for another.

Hence, if you find an example in the regulations saying you can impute permitted disparity for one purpose, you can do so for any other purpose, such as the ABT.