help with testing-check my numbers

[betheeg]

i am trying to figure out if a new comparability formula works for this plan. i have done my calculations and testing, but i am new at this, and would like someone to check my work.

brand new plan, 2 eligible employees. 1 HCE and 1 NHCE.

HCE comp $200,000.

NHCE comp $25,000.

i am using the UP-1984 table at 8.5%.

contribution to HCE is 40,000.

contribution to NHCE is 1,700.

i am calculating the HCE's EBR to be 7.88%

i am calculating the NHCE's EBR to be 5.58%

by my calculations i am showing that this passes the general nondicrimination test "rate group test" by passing the nondicriminatory classification test and passing the average benefit percentage test.

i just want to make sure i'm getting this right before i go any further.

thanks for any help.

[AndyH]

Ages?

[Guest jody303]

I agree with AndyH. We need ages of these participants to check your calcs. However, you may be passing average benefit % test, but you're not passing the 401(a)(4) rate group test because the HCE's EBR is greater than the NHCE's EBR. So, to clarify, you have 0 out of 1 NHCE in the rate group and 1 out of 1 HCE in the rate group for a ratio % of 0%.

[betheeg]

sorry! forgot the ages!

HCE is 51 and NHCE is 42.

[AndyH]

Your EBARS are right, although due to rounding I get an NHCE EBAR of 5.59% instead of your 5.58%, but close enough.

[betheeg]

how about the testing? that's what i needed the most help on.... does this pass?

i went to a seminar and have materials that state that if the group passes the classification test and the plan as a whole passes the average benefit % test, then the rate group satisfies 401(a)(4).

[R. Butler]

I could very easily be missing something, but as Jody 303 points out, I don't see that you are passing 401(a)(4). The rate group percentage is 0.

It seems to me you have to bring NHCE's contrib. to about $2,400 to pass.

[betheeg]

thank you for your help everyone...i appreciate it.

[AndyH]

No, it does not pass. The NHCE EBAR must be higher than the HCE EBAR to have a chance. You have a 0% rate group consisting of the HCE and anybody with a greater EBAR, which is nobody. So that rate group has a R/P of 0%. Each rate group in this case must have a R/P of at least 45% to pass NCE. Yours is 0%. The 45% is the midpoint from a table in the 410(B) regulations.

To pass using your assumptions and methodology (there are more complicate options such as inputing permitted disparity), you'll need to give the NHCE another $700.