ABT and term w/ <500 hrs

[Guest carsonv]

Here is the situation:

I have a safe harbor (match) 401(k) psp. The discretionary ps contribution is cross-tested (of course, why else would I be here....for fun?). I know that for coverage purposes, we can exclude terms with less than 500 hrs.

When testing, we failed the rate group test so then we move on to the ABT. Are terminated participants with <500 hrs included in the ABT?

I hope there is enough info for some advice, if more is needed I can supply it.

Any help would be appreciated.

Carson Vaughan

[Blinky the 3-eyed Fish]

Yes they are included in the ABT because the plan is a 401(k) plan, deferrals are part of the ABT, you can't exclude term <500 hours when a person is otherwise benefiting and that is the case with deferrals.

[Tom Poje]

first, lets get at least the terminology correct.

the plan is being tested for nondiscrimination. (and lets preface all this by saying the same basic rules that apply to coverage apply to nondiscrim testing - the nondiscrimination test is slightly modified)

for coverage you are required to disaggregate the 401(k), 401(m) and nonelective.

keep that in mind - those are the 'bodies' you look at for your testing group.

In particular, rate group testing is being performed.

you said you failed, if that was true, then there is little you can do but make corrections somehow.

I suspect what you mean to say is that the rate group test failed the ratio percentage test and therefore you are going to try to pass nondiscrimination using the average benefits test.

there are 2 parts

1. nondiscrimination classification test - this is still a rate group test, only easier to pass since you only need to pass the 'midpoint'

again, this group is based on the coverage tested group and is performed separately (the famous 'required disaggregation') for each group (e.g. 401(k), 401(m) and nonelective) thus, terminees with less than 500 hours could be excluded (remember this an option and not required, it may be helpful to include if there are HCEs that fall into this group.) so you are correct, if you didn't include them for coverage, you wouldn't include them here either.

2. for the average benefits percentage there is no disaggregation, you must include everybody who benefited. since the terminees could have deferred, you must include them as they did benefit.

so, to answer your question, as to whether to include the terminees < 500 hours, the answer is both yes and no. it depeneds on what part of the test you are talking about.

[Guest carsonv]

Thanks for your help and clearing up the confusing question I asked. You gave me the anwser that I needed.

I knew that my terminology was incorrect, but I am glad you could could help me out.

Carson

[AndyH]

Tom, you waited until 6:19 AM to comment? Thought you'd be on it by 5:15 at the latest!

[Blinky the 3-eyed Fish]

Good clarification Tom. I assumed he was talking about the ABT% since this is a common question regarding that test but that could have been a poor assumption.