Component Plans

[Guest greggi39]

Does this have to be in the ctp doc as an option of testing?

if i have 2 hces and 2 nhces, i have 1 hce and 1 nhce in each component plan, i pass coverage. .5/.5=1.0

when i look at the ebars for the benefit component plan, do i include the alloc rate component plan ee's as 0's or use their true ebars?

[Mike Preston]

Huh? Component plan language is never in the plan. However, sometimes documents demand that certain non-discrimination tests be satisfied. If use of those tests is inconsisent with component plan testing, then they are essentially frozen out.

[AndyH]

If you are testing 2 on a benefits basis and 2 on a contributions basis, you treat the other two as non-excludable and not benefitting in each test, i.e. as if they were 0%s.

[Gilmore]

Huh? Component plan language is never in the plan. However, sometimes documents demand that certain non-discrimination tests be satisfied. If use of those tests is inconsisent with component plan testing, then they are essentially frozen out.

Mike,

Not sure if you are still following this thread, but if so, can you please elaborate a bit on your response.

Thanks.

[Mike Preston]

Back in the olden days (g), the IRS issued a Field Service Memorandum that required cross-tested documents to contain, within the four corners of the document, the precise mechanism by which it would satisfy 410(b) and 401(a)(4). While the Field Service Memorandum was rescinded, there may still be a document or two or more that contain that sort of language. If your document specifies the mechanism that the plan will use to satisfy 401(a)(4) then you can't use component plan testing to prove the plan would satisfy 401(a)(4), because while that might technically be correct, the plan would be guilty of not following its own terms.

[AndyH]

I've run across a lot of those documents that Mike describes in takeover plans. They are typically attempts at prototype cross tested plans, maybe envisioned before the IRS decided not to allow prototype cross tested plans. By now most of them have been re-written, but it is absolutely something to watch for.

I would not be surprised if there were volume submitter plans out there that specifically state that the plan is to be tested on a benefits basis. This might preclude the opportunity to test part of the plan on a contributions basis, which is typically done with component plan testing.

[Gilmore]

Thanks for the clarification, Mike, Andy.

Is there a good reference, other than the threads here, for learning more about component plan testing?

[AndyH]

There isn't much that I know of. The best source that I found was in ASPA's C-4 exam study material. The reading compendium is called "Current Topics for the Retirement Plan Consultant". The article that was helpful to me started on page 579 of the Fifth edition. It is called "Planning Opportunities to Maximize Benefits for Key Employees Under Qualified Defined Benefit Plans". It is written by Maria Sarli and Dennis Coleman of Kwasha Lipton. It is apparently a reprint of an article first in Tax Management Compensation Planning Journal August 5, 1994.

Although it contains a lot of DB stuff, there is a lot of cross testing information including cross testing of DC plans. It goes through the component plan testing process pretty much step by step.

[Mike Preston]

I haven't checked the programs for this year's conferences (The ASPA Summer Academy and ASPA's Annual Conference) but they usually have a few sessions devoted to non-discrimination testing. Larry Deutsch frequently prsents one of them. You might consder one of those conferences.

In addition, Larry presents an annual (or sometimes more frequent) "Non-Discrimination Symposium" which has 1 or 2 full days of introductory concepts and then 2 days of really, really, really advanced concepts. I don't think there is a more thorough educational program in the country with respect to non-discrimination testing.

Corbel offers various courses which are intended to address this topic (as well as many other topics).

As does McKay-Hochman.

I'm sure there are others out there, as well.

[Gilmore]

Thank you gentlemen. I've printed off both of your replies and will start investigating. Thanks again.