Avg Benefit Test

[PJaeger]

We have a cross-tested plan that is simply has to classifications - owners and non-owners. The non-owners get a 5% contribution and the owners 18%. There is one young HCE in the non-owner group.

Each of the owners show passing the rate group testing. The Non owner group is failing the benefits and ratio test.

Why would this require a higher contribution for the non owner group. Am I missing something?

[Mike Preston]

Owners versus non-owners is irrelevant to the non-discrimination tests. The only thing that matters is whether an individual is an HCE or not. In this case, you have a young HCE whose rate group is apparently not passing the tests. You can either test a different way (accrued to date, for example), restructure the plan and test the restructured plans separately, or fix the failure by increasing benefits to NHCE's so that the rate group passes the tests.

[PJaeger]

I really never thought of it from that standpoint nor have run into this before since usually the HCE ends up switching group for allocation purposes.

Any restructure ideas (this is after the plan year end of course).

Nothing is ever easy.

[Mike Preston]

You want me to give away all my secrets? (g)

Seriously, it isn't anything more than rearranging the people so that all the rearranged plans satisfy one test or another. If you are lucky, it is more successful than "rearranging the deck chairs on the Titanic".

You'll need a printout of the relevant testing percentages on all of the various testing methodologies before you can even begin to deal with restructuring. Keep in mind that when using restructuring, each restructured plan typically needs to meet the 70% test for 410(B) purposes even if the Average Benefits Plan is satisifed.

[AndyH]

PJaeger, if you lay our how many are in each contribution level I'll try to tell you how to restructure it to pass. Include anybody getting nothing that is not statutorily excludable as well, i.e. 0%, so you have three groups, 18%, 5%, and maybe 0%.

[PJaeger]

Thanks Mike and Andy. I have it restructured. I just wanted to be sure I wasn't missing something because I had never run into the problem before.

[Mike Preston]

Glad it worked out.