Confused about coverage testing

[Guest DIGMYDOG]

I'm confused... I've been reading all about the 410(b) minimum coverage, 401(a)(26) Minimum Participation and nondiscrimination testing under 401(a) (4).

Is it true that if your plan is not a defined benefit plan, you do not run the 401(a)(26) minimum participation test (unless before 1996)? Am I understanding this right?

Who can you exclude for coverage testing? I read that you can exlude anyone who did not meet the age and service of the plan. If a plan has immediate eligibility for 401(k) portion, you can use one year of service (otherwise exludible employees). Can you also exclude terminated participants that did not work more that 501 hours? I'm confused because Relius is putting the terms with less than 501 hrs in the exludable group. I didn't read anywhere where these ees can be exluded.

Is it true that basically 410(B) deals with minimum coverge while 401(a)(4) deals with nondiscrimination in terms of benefits? At least that's what I think I'm reading...my brain is mush...

We have a plan that only has 401(k) deferral money in it. the document allows for match and profit sharing, but there never has (or probably never will) been any employer match of profit sharing contributions.

The document is a standardized protoype, so all NHCE benefit under the plan. I've always filed the Schedule T reporting that all NHCE benefit.

Now, the sponsor wants to try to separate one of the "divisions" into it's own plan. The attorney is asking for Total EEs, Total HCE, Total exludable NHCE, Total excludable HCE. This seems like data for coverage testing. Is there some other test he will be running to see if we can have a separate plan? His request asked us to exclude ees that have not met the age and year of service requirement. Don't we need to also exlude those who have terminated with less that 501 hours?

Any guidance on this matter would be appreciated.

thank you

[Tom Poje]

min partic - DC do not have to do

exclude from testing - those fail age /svc, union ees, non resident aliens

optional to exclude terms < 500 hrs (only if they do not benefit (e.g. you can't exclude them from 401(k) testing) you have to be consistent - you can't include HCE terminess and exclude NHCE terminees.

coverage (410(b) doesn't care how mush, er, much you get, just wheter you get

with a standardized document you have to pass coverage, so it sounds like you are ok.

.........

yes, it sounds like attorney is doing coverage. if you are talking about testing, it seems to me you wouldn't want to include any terminees. assuming a calendar year, everyone has accrued 500 hours (or so assume) and can't be excluded. however, if you are looking at data to get an idea for next year, it wouldn't make sense to include any terminees.

[Guest Pensions in Paradise]

Keep in mind that if each division is going to have it's own plan, you can't use a standardized prototype.

[Guest DIGMYDOG]

Thank you for your responses.

Tom, your explanation was so helpful. Do you happen to know where in the code it talks about the option to exclude the term part with <500 hrs? Taking a second look at the Relius reports, I now see where it excludes the term, but only for the 401(a) portion of the plan. The 401(k) and 401(m) both do not show the terms as exluded.

Now here's another question regarding the 401(k) plan I referenced in my earlier post. If no HCE benefited under 401(a) (non-elective contributions), then why would you even have to run coverage testing? Also, if all NHCE benefit under the plan (100% ratio percentage), then why would you have to run coverage for 401(k)?

With this in mind, if the attorney knew that the document was a standardized prototype and that there is never to be any Profit Sharing Contribution or Match. Why would he need to know coverage testing info?

Pensions in Paradise, thank you for your imput. The Plan covers a Headquarters division, 20-30 facilities (each have their own tax id number, but the same owners)and a Pharmacy. The Pharmacy is owned by one person and has a business relationship with the facilities. The attorney was ingaged to see if we can separate the Pharmacy from the other two. So there would be two plans instead of one.

You are saying that both plans would have to be on a nonstandarized document?

[Guest Pensions in Paradise]

Yes, neither plan could be on a standardized document. Standardized plans are required to cover all employees of the employer & related employers. Therefore, if you want separate plans for each group, neither can be on a standardized document.

[Tom Poje]

see 1.410(b)-(6) it lists all the excludables.

terminees are listed under (f) {I know that 'cuz I have to cover it at the ASPA talk}

note that you don't have an hours restriction for deferrals, so terminees would not be excluded from the 401(k) portion of 410(b) testing

I suspect you have no last day requirement for match (or 0 hours) , therefore you would not exclude the terms from testing since they would receive a match if they deferred.

Remeber, for coverage you have 3 tests

401k

401m

nonelective

you have to pass all 3.

I suspect your attorney wants to know because the propoasal was as follows:

More than one division, but only want one division to have a plan.

Therefore, new document required, a nonstandardized one- as pensions in paradise indicated.

therefore, need to know the population so testing can be looked at.

hmmm. maybe that is giving the attorney too much credit????

generally 401k is 100%, but in a controlled group scenarion , if only one group benefits it wouldn't be.

you might pass the nonelective (profit sharing portion) but the plan might have been nasty in regards to the match and so you would still have to test.

A standardized plan is a no-brainer. All nonhighlies benefit all 3 tests. But you pay a price for that option