414(s) Testing - ADP/ACP test purposes

[Guest jae3207]

Plans eligibility requirements are less than the statutory 1 yos/age 21. 1 HCE falls into the under group for coverage testing purposes, but is in the over group for adp/acp testing purposes. Client wants to use a nonsafe harbor definition of compensation for adp/acp testing, so 414(s) testing needs to be performed.

A literal interpretation of the 414(s) Regulations indicates that the employees counted in the testing are "the same employees taken into account in satisfying the requirements of the applicable provision for the determination period" (e.g. - apd/acp testing) and who are deemed "benefiting" under Regulation 1.410(b)-3(a). Since we disaggregated the coverage groups for the 401(k) and 401(m) portions of the plan, where would this 1 HCE be tested (e.g. - over or under group). Since the HCE is not deemed benefiting in the over group, would we keep them out of the 414(s) entirely?

[Tom Poje]

well, you certainly cant keep someone out of a testing group, he has got to show up somewhere.

my logic, which is often twisted and mixed up would be as follows:

coverage testing does not care about how much, only who gets covered - this usually would not require the use of compensation.

nondiscrim testing involves comp, therefore if the ee has less then 1 year of service, but you are invoking the special adp test rule as treating him as having 1 year of service then I would run my 414s test under the same conditions.

again, that is just personal opinion.

An interesting question arises if the plan would fail ratio % for coverage and relied on the average benefits test to pass coverage. now you would have to run avg ben % test. now everything falls apart because this guy would be otherwise excludable.