ADP/ACP test -- Disregarding otherwise excludibles when we have an HCE not meeting the statutory minimums

[R. Butler]

401(k) Plan requires only 3 months of service for entry. Plan has one HCE & several NHCEs not meeting statutory age & service minimums. We want to exlude the otherwise excludible NHCEs. How do I get Relius to do that? When I test the "otherwise excludibles" seperately Relius puts the one HCE in the "otherwise exlcludible" test. Obviously, when I include the "otherwise excludibles", I get not only the HCE, but all the NHCEs as well.

Thanks in advance for any guidance.

[Guest quinn the car fixer]

can't you override the hce to be NOT stat excludable and then run the test?

[R. Butler]

Probably, I just hate to override data. This isn't a new rule, you'd think Relius could handle this without any overrides.

Thanks though, that probably is the route I will have to go.

[Guest John Taylor]

In Relius Administration version 10.0, due out in the next couple days, the ADP/ACP test has been enhanced so you can either test separately or just carve out the excludable nhce's.

[FJR]

Why wouldn't the HCE have to be included? What is the exception?

[Guest Pensions in Paradise]

I agree with FJR. When testing the otherwise excludable, there is no exception for carving out the otherwise excludable HCE.

[Tom Poje]

I believe they are not 'carving out' the HCE(e.g. excluding him from testing entirely), but rather, treating the HCE as if he had completed 1 year of service. That is an option.

[R. Butler]

Why wouldn't the HCE have to be included? What is the exception?

The HCE should be included & that is the issue. For ADP/ACP test purposes only the NHCEs can be set aside as statutory excludible. At Relius 9.1.2 when you opt to exclude the "otherwise excludibles" not only are the NHCEs set apart, but also any HCE not meeting the statutory minimums. The HCEs should not be set apart & that is the problem.

I know that 10.0 is now out & I just haven't had time to go get it. Per one of the messages in this thread; 10.0 may fix the problem.

[FJR]

Excuse my ignorance, but if the HCE has not completed the 1yr. and only has the 3 months like the NHCE's. where does it say in the regs that you only set aside the NHCE's? My understanding is you would use both. Now, granted in most cases, the HCE's are usually not considered statuatory, but that is not a given.

[Tom Poje]

this was one of the gifts of SBJPA.

see IRC 401(k)(3)(F)- basically only one ADP/ACP test is performed, ignoring all NHCE who are otherwise excludable.

This does not mean that the HCE is 'cast off' so to speak, merely that he is treated and tested as if he completed a year of service.

There is no similar rule for coverage or even nondiscrim testing involving nonelective contributions.

[E as in ERISA]

Aren't both ways viable?

From the final 401(k) regs:

"Section 401(k)(3)(F), as added by SBJPA, provides that a plan benefiting otherwise excludable employees and that, pursuant to section 410(b)(4)(B), is being treated as two separate plans for purposes of section 410(b), is permitted to disregard NHCEs who have not met the minimum age and service requirements of section 410(a)(1)(A). Thus, the regulations permit such a plan to perform the ADP test by comparing the ADP for all eligible HCEs for the plan year and the ADP of eligible NHCEs for the applicable year, disregarding all NHCEs who have not met the minimum age and service requirements of section 410(a)(1)(A). Because section 401(k)(3)(F) is permissive, the final regulations follow the proposed regulations and do not eliminate the existing testing option under which a plan benefiting otherwise excludable employees is disaggregated into separate plans where the ADP test is performed separately for all eligible employees who have completed the minimum age and service requirements of section 410(a)(1)(A) and for all eligible employees who have not completed the minimum age and service requirements."

[kocak]

My understanding - both ways are viable.

If you meet coverage requirements testing the statutorily excludable employees separately, you can test them separately for nondiscrimination (ADP/ACP testing).

When doing the nondiscrimination testing, we have the option of running it as two tests (same as coverage) or putting all the HCEs into one group and effectively eliminating your second test since it will only include NHCEs.