Ratio Percentage Test

[Guest AJM 34]

Since all employees who are eligible to participant in a 401(k) Plan, whether or not they join the plan, are considered to be "benefiting" under the Plan.

My question is how can a 401(k) plan fail the Ratio Percentage test? Is it possible than less than 70% of the non-highly ceompendated employees are not eligible to participant in a plan?

[Kimberly S]

If the plan covers only part of the workforce it can fail.

[Guest AJM 34]

The plan is question covers every employee in the company and the eligibility requirments are age 21 and 1 year of service.

Am I wrong to say that its impossible to fail the Ratio % test in this situation?

[austin3515]

You are not wrong. One might also say, "you are right"

Yeah, I think the wink is my favorite...

[Tom Poje]

just to make sure on the facts, because the answer could be different.

suppose I have 2 companies, A and B.

they are a controlled group.

I can say "All employees are eligible to particiapte" but if by 'all employees' I mean of company A, then I could easily fail the ratio % test.

also, remember, you are only talking about the ratio % test for the 401(k) portion only. I had to explain that to someone years ago, just beacuse everyone can defer and hence benefit, does not mean

"The plan passes the ratio % test"

the correct answer is that the plan passes the ratio % test for the 401(k) portion. the nonelective portion (and the 401(m) is a totaly separate test.