cross testing

[PensionNewbee]

Can I test on SSRA and have a different NRA in the plan?

[Tom Poje]

well, you can of course do whatever you want , but I don't think that is what you are really asking.

Is it permitted under the regs?

yes, but...

1. when testing a plan you are supposed to use normal retirement age under the plan, so you can't simply decide to use that as your testing age.

(see 1.401(a)(4)-12 defintion of testing age)

2. My understanding is that you could write a plan to contain language that for a(4) testing it would be SSRA - at that point it is also my understanding you would now have to check BRF , e.g. ees at SSRA 65, ees at SSRA 66, ees at SSRA67. chances are the plan would fail at that point.

if your HCE is born in the first half of the plan year, using age definition nearest sometimes helps, especially if the NHCEs were born in the second half of the year.

[PensionNewbee]

yes, thank you for clarifying my question, exactly.

I have a small plan - 2 people. One HCE. The objective is to give the NHCE 5% and the HCE 40K. This works if I use SSRA to test. The problem is that my plan document software does not have SSRA as an option for retirement age.

If I don't use SSRA to test, the contribution to the NHCE goes up to 9%.

RATS.

[Tom Poje]

well, thats better than having software that simply allows you to test using SSRA! otherwise you might have simply ran it that way and had been satisfied.

sounds like you only have a 10 year difference in age.

(1.085^10 = 2.26)

9% * 2.26 = 20.34%

if owner makes 200,000, then 20.34% of that is the 40,000

that assumes of course owner makes that much. imputing disparity helps a little.

[PensionNewbee]

Tom,

the owner makes 150K, the NHCE makes 50. what exactly does "imputed disparity" do for the cross tested testing?

[Tom Poje]

see, I have to give this talk on cross testing at the fall ASPA conference, and its questions like that which I have to work into the discussion.

in your particular case

NHCE has SSRA of 67, so imputing disparity will add .65 to the EBAR

the normal adjustment at SSRA 66 is .7

and at SSRA 65 is .75

however because HCEs have soc sec benefits taken out only up to the TWB, an adjustment is made to these numbers to take this into account.

Thus the HCE adjustment will probably only be .4 to the EBAR

in other words, the NHCE EBAR is increased by more than what the HCE EBAR is increased, thus helping your test.