Self-Direction Discrimination?

[MarZDoates]

Plan permits any participant with account balance =>$10,000 to have a segregated, self-directed account. Everyone else stays in a pooled account with Trustee investment direction.

Currently 65% of the NHCEs have the ability to self direct. 100% of the HCEs have the ability. Is this discriminatory?

Is there a specific percentage of NHCEs that would have to be allowed to self direct that would not be discriminatory?

[imchipbrown]

Off point but maybe relevant. Say I'm a NHCE with a separate account, deferring (I assume a 401(k) account) $50/check. If I have a seperate account, do I have any real investment options? Most mutual funds want a $1,000 beginning investment. I'd be better off in a pooled account.

Of course, facts and circumstances rule the roost.

[JanetM]

Last I dealt with this the numbers were the same as 410b and 401a4 coverage. So if you have at least 70% NCHE who have ability to self direct you are okay.

If not the plan needs to make some changes. Minimum balance requirements rarely pass the test

[MWeddell]

Two issues here:

1) Is this a benefit right or feature available to only some participants that is subject to 1.401(a)(4)-4 testing?

2) If so, does the test pass?

I believe the answers are yes and yes.

There probably are previous threads discussing the first issue and I'll admit that it's unclear.

On the second issue, through a series of cross-references, the BRF test is the same as the nondiscriminatory classification test. You compute a ratio percentage but the passing threshold isn't 70.00% but a lower figure between 20% and 50%. If all of the controlled group's employees are eligible for the plan, then your ratio percentage of those who have access to self-direction is 65% >= 50%, which passes. Of course, you'd need to test every three years at least.

[MarZDoates]

Going to re-open this can of worms. If you have a requirement that only participants who are fully vested can self direct, wouldn't this have the same effect as placing a minimum balance restriction on the right to self direct investments?

[JanetM]

Seems to me it would.