General Test Required ?

[LIBOR]

I have a newly acquired DB plan that covers HC physicians and generally NHC office staff; the physicians have a better formula and so the general test was required and passed in 2001.

Question: the client wants the plan amended to provide a better formula for 1 particular NHC member of the office staff ( who has a unique job description) . Would this amendment neccessitate immediate general testing or could it wait until 2004 ( i.e. 3 years from 2001 ) ???

[Blinky the 3-eyed Fish]

I am confused. Don't you already have a non-safe harbor plan? Wouldn't increasing the benefits for one of the NHCE's just help the testing?

[LIBOR]

Exactly ! Logically it should become easier to pass ! Each rate group that includes this NHCE would now have a higher accrual rate for him ; I was just wondering if the amendment that increases this NHC's benefit is a triggering event for a test in the eyes of the IRS??

[Guest Keith N]

On a small plan like you described, even if the Plan wasn't changed, I think you should test it every year. I think the 3-yr testing alternative should only be used on larger plans that are not constructed as tax shelters. When the termination of one or two people could dramatically impact your results, I would test it every year.

[Blinky the 3-eyed Fish]

IAW Keith on this. In what appears to be a small plan one change to who is eligible would be a significant change and preclude the reliability of using a 3-year testing cycle.

[mwyatt]

I always agreed with not utilizing the 3-Year Cycle and for that matter the EOY snapshot testing for small plans, unless you think you could, with a completely straight face, tell the IRS agent that due to the complexity of reconciling data for your doctor and 3 nurses that you were relying on 93-42 to pass the General Test.

[LIBOR]

This is a big plan - would the responses be different now ??

[Blinky the 3-eyed Fish]

How many participants is big?

[Guest Keith N]

Big, small I'm not sure thats the way to look at it.

If I had a 50 life company that was providing different benefits for two different locations and my passing margins were high, and they weren't giving HCE's a significantly higher benefit, then the three year would be fine.

If I had a 400 life law firm that provide top 4 partners with a huge benefit and staff w/ $0, then I would test it every year.

I would look at your passing margins and what the intent of the Plan was. If your pushing the envelope, I would be very concerned that it didn't break.