Do 401(k) deferrals count under Average Benefit Percentage Test?

[Übernerd]

When calculating an employee's average benefit percentage, must the employer include the employee's elective deferrals under a 401(k) plan? According to § 1.410(b)-5(d)(2), "only employer-provided contributions and benefits are taken into account in determining employee benefit percentages . . . employee contributions . . . are not taken into account."

The 401(k) Regs say, of course, that employee elective deferrals are treated as employer contributions. § 1.401(k)-1(a)(ii). So, does "employer-provided benefit" always equal "employer contribution"? I'm hunting for an explanation of any difference between these terms, but no luck so far.

Interestingly, the cited 401(k) Reg includes a non-exhaustive list of Code sections to which the "treatment-as-employer-contribution" rule applies: 401(a), 401(k), 402, 404, 409, 411, 412, 415, 416, and 417. This list doesn't include 410 (the section I'm concerned about), and does incude section 411 (vesting rules), under which elective deferrals are always 100% vested (i.e., the rule really shouldn't apply under 411).

Thanks for any ideas.

[Tom Poje]

it is the after tax employee contributions that are not included - well I suppose one adds catch up contribution to the list of things not to include.

[Übernerd]

it is the after tax employee contributions that are not included - well I suppose one adds catch up contribution to the list of things not to include.

That certainly tracks the general split between amounts treated as employee contributions for federal tax purposes and employee elective deferrals, which are treated as employer contributions. I guess my question is, given the different nomenclature used in the 410(b) regs ("employer-provided contribution or benefit" vs. "employer contribution"), how do you know whether 401(k) contributions fall under "employer-provided contribution or benefit"? I.e., how did you determine that § 1.410(b)-5(d)(2) was intended to exclude only after-tax and catch-up contributions?

[Tom Poje]

the logic is in 1.410(b)-7(e)(1) which says include all plans that could be permissively aggregated

....and if you read through to the very last words of the paragraph--->

without regard to paragraphs ©(1) and ©(2) ---> which is the disagregation for purposes of the ratio percentage test

[Übernerd]

the logic is in 1.410(b)-7(e)(1) which says include all plans that could be permissively aggregated

....and if you read through to the very last words of the paragraph--->

without regard to paragraphs ©(1) and ©(2) ---> which is the disagregation for purposes of the ratio percentage test

Thanks very much, Tom, this is very helpful. Let me see if I can follow it to its conclusion. Applying § 1.410(b)(7)(e)(1) (and therefore ignoring the disaggregation rules in ©(1) & (2)), it's clear that the CODA has to be included along with the other "plans." And I suppose it would be silly for the regs to say, on the one hand, that CODAs must be included in the ABP test, and then to say, on the other hand, that 401(k) deferrals aren't "employer-provided" benefits and therefore always add "zero" to the participant's benefit percentage.

So, to argue that 401(k) deferrals aren't "employer-provided" benefits (and therefore may be excluded), you'd have to argue that they were simply "swept in" under the broad language in § 1.410(b)(7)(e)(1), even though the add nothing to the test. Hmm. While I hesitate to ascribe total consistency, forethought, and logic to the regs, this seems like a tough row to hoe.

[J Simmons]

In Feb 2002, the IRS addressed this issue and held that 401k elective deferrals are taken into account in the average benefit percentage test.

[Übernerd]

In Feb 2002, the IRS addressed this issue and held that 401k elective deferrals are taken into account in the average benefit percentage test.

That would be interesting to read--do you have a citation? Thanks.