Excluding classes of employees

[Guest Clain]

Can a plan document exclude a class of employees (highly compensated employees) from the matching portion of a plan while still allowing them to participate in the 401k deferral portion of the plan?

Clain

[401_4_ever]

Yes. You'd have to pass coverage seperately, and you may have to start running 401(a)(4) testing as well. In the case of a match, you'd also impact ACP testing. None of those would be an issue if it's HCE's you are excluding.

[Guest Guest99]

and you may have to start running 401(a)(4) testing as well.

In what circumstance would 401a4 testing need to be run when you exclude a group from a Match?

[Tom Poje]

ok, assuming only HCEs are excluded from match, I find it hard to beieve you could fail coverage - unless you had a last day or hours requirement and a whole heap on NHCEs did not receive a match either.

the 401(a)(4) test for match is the ACP test. the excluded class of ees would not show up because you only include eligible ees on the test.

[401_4_ever]

It would need to satisfy rights & features nondiscrimination under Treas Reg 1.401(a)(4)-4(e)(3).

For example, how about if I excluded only blondes from receiving a match.

[Guest Guest99]

If you excluded blondes from the Match, I would expect you to prepare a coverage test showing the plan satisifies 410(b) and then an ACP test. Is there something additional that you would do?

[401_4_ever]

Simply because you pass coverage does not mean you have satisfied 401(a)(4). See Treasury Regulation 1.401(a)(4)-4©(1) which requires that "Based on all of the relevant facts and circumstances, the group of employees to whom a benefit, right, or feature is effectively available must not substantially favor HCEs."

In my example, what if the Employer has 2 HCE's, no blondes. They have 10 nHCE's, with 2 blondes. That will pass coverage. However, they still need a facts & circumstances test to show it does not substantially favor HCEs.

In Example 1, directly below what I just quoted above, they go through an example of passing coverage testing, but still failing this facts and cirucmstances test.