Brain cramp - non statutory excluded class and ADP

[mwyatt]

Client has a 401(k) plan which provides for deferrals and employer matching contributions. There are no other plans sponsored. In the plan, they exclude a class of participants not covered by the statutory exclusions under the Code.

Question has arisen as to whether the employees in the excluded class who would otherwise satisfy the eligibility requirements and be in the Plan if they weren't excluded should be considered for the ADP and ACP tests. Clearly these folks are included for purposes of 401(a)(4)/410(b) testing; don't see why they would be kept out of ADP/ACP tests or am I all wet here?

[Guest ggdjo]

My understanding is that as long as 410(b) coverage requirementas are satisfied, the excluded group does not have to be included in the ADP testing.

[Brian Gallagher]

Excluded people do not take part in the ADP/ACP test. It is only for eligible participants. Since they are excluded, they are not eligible to participate. You are correct, of course, that they are included for puposes of coverage testing.

[mwyatt]

Aha, but now the wrinkle. For 410(b) on the ADP side of things, I'm passing (since under 410(b), the ability to defer is equivalent to actually deferring). However, with regards to the employer match, I'm failing 410(b), which would in my mind that my ACP test is on hold until I fix the 410(b) problem. Corrective method under plan document is to add in folks, but how do you do this when increasing those who already received a match isn't going to get me to pass 410(b)?

[WDIK]

Doesn't 410(b)(6)(E) include contributions subject to 401(m) as well as 401(k) within the eligibile to contribute definition?

[Guest teammom]

Hi - new to this board - thought I would throw my 2 cents in here...

Is there an hours or Last Day Rule requirement for the Match - OR is there different eligibility from salary deferrals? IF not - your 410(b) test for the M should be the same for the K

If you are failing 410(b) on the Match - your plan document SHOULD provide guidance as to what groups to bring in to pass 410(b) for the M...

ie: First Bring in actives with less than 1000, then Terms with 1000 etc etc. etc.

[Tom Poje]

mwyatt

I am confused by your statement

Corrective method under plan document is to add in folks, but how do you do this when increasing those who already received a match isn't going to get me to pass 410(b)?

It is one or the other. In the case of a plan failing coverage, you will have to add people, quite possibly through a corrective amendment under

1.401(a)(4)-11(g)(3)(vii) Special rule for section 401(k) plans and section 401(m) plans

buried in the paragraph (it is the last sentence)

provide a "....QNEC to NHCEs who were not eligible....equal to the product of the [nhce you are adding] compensation and the ACP percentage for the group of NHCEs who were eligible

you have 9 1/2 months after plan year end to correct problem.