Basic Nondiscrimination Q

[Guest lvegas]

I'm assuming that there is a requirement that plans be tested for nondiscrimination on an annual basis, but is there a requirement that a plan make a filing to that effect (i.e. in Form 5500 or something else)?

[Tom Poje]

Nondiscrim testing:

in a 401k plan it is the ADP test. do you indicate anywhere on the 5500 that you perform such a test? Nope.

same holds true for any nondiscrim testing. its all the same thing.

but you do it because if plan fails and you dont make corrections soon enough you are in deep....

now, if you are applying for a determination letter, you could attach a schedule Q. that would be about as close to a filing requirement as I can imagine.

[Effen]

"nondiscrimination" is a fairly generic word. There are several "nondiscrimination" tests, assuming that there haven't been any material changes, are only required to be performed every three years. That is why the 5500 allows you to rely on Schedule T's from prior years.

To which nondiscrimination test were you specifically referring?

[Blinky the 3-eyed Fish]

More explanation is warranted to that last post. First, the Sch T reports coverage, not nondiscrimination, but the same concept applies. Testing every three years is only allowable where there have been no significant changes to the workforce or plan. It is designed for larger plans as even a one person change in a smaller plan could alter the nondiscrimination testing results, so to rely on the 3-year cycle in a small plan is unwise.

[Guest lvegas]

I was referring to nondiscrimination in benefits, not coverage. WHere can I find the 3-year rule?

[AndyH]

Revenue Procedure 93-42. If you want to send me an email, I will reply with a pdf version.

[Guest lvegas]

Thanks...

Quick follow up - is the following true?:

If a plan meets the nondiscrimination in coverage test, then the nondiscrimination in benefits test is applied taking into account only those employees who are actually covered under the plan. In other words, those who are excluded from coverage are not considered in nondiscrim in benefits testing.

[Blinky the 3-eyed Fish]

I think I understand your question but I am not 100% sure, so let me recap. Are you asking if the plan passes coverage under 410(b) even though, say a class of employees are excluded, then does the excluded class count in the 401(a)(4) nondiscrimination testing? If so, then the answer depends on what nondiscrimination test you are running.

For ADP and ACP testing, if the person doesn't benefit, then they are excluded from the nondiscrimination testing. An excluded class would of course not benefit, so they don't count in the nondiscrimination testing at all.

For general testing the nonelective contribution it is different and the excluded people count as participants with no benefit.