New Comparability Plan

[Guest AJM 34]

I have a New Comp Plan with 3 HCE's.

We Plan on giving the HNCE's 5% in order to Pass the Gateway Requirement.

The Ratio Percentage Test is 100 %.

The Individual Rate Group for the 3 HCE's Pass.

My question is do I still need to pass the Average Benefits test?

[J Simmons]

When you say the "Individual Rate Group for the 3 HCE's Pass", does that mean each of the 3 HCE's separately tested rate group passes? Is that passing the 70% ratio percentage test or the modified ratio percentage test?

If each HCE's separate rate group passes the 70% ratio percentage test, you should not need also to pass the average benefits percentage test.

[Guest AJM 34]

Each of the 3 HCE's seperately tested rated group passes.

They pass the modified ratio percentage test where the overall ratio % is equal to or greater than the Midpoint % (see below)

Ratio Percentage Test

Ratio of Non-Highly Compensated Group 30.00%

Ratio of Highly Compensated Group 66.67%

Overall Ratio 45.00%

The Concentration of NHCE (NCECP) 90.91%

Midpoint % 23.75%

The Overall Ratio % must be equal to or greater than the Midpoint % PASS

Must they still pass the average benefits test?

[BG5150]

I believe you are good to go...

[Opps. That was before I realized one or more of the individual rate groups failed]

[austin3515]

IF any of the rate groups is less than 70%, then the average benefits test must be passed. The reasoning is exactly the same as in coverage (i.e., you fail the ratio percentage, you need the Avg. Ben Test). After all, rate group testing relies on very heavily on coverage testing rules (some small differences, like the use of the mid-point in the nondiscrim. class. test).

But based on you last post, you seem to be indicating that your plan (as a whole) fails the ratio percentage test - not just one of the rate groups?

Three follow-ups:

1) What is your COVERAGE ratio percentage

2) Are you testing based on allocation rates or accrual rates?

3) For EACH of the HCE's, what is their rate group's ratio percentage? Or is 45% for each of them?

[Guest AJM 34]

The plan (as a whole) passes the ratio percentage test - All HCE's and NHCE's benefit.

Three follow-ups: ANSWERS BELOW:

1) What is your COVERAGE ratio percentage.

Answer: The coverage ratio is 100%. All HCE and NHCE's benefit.

2) Are you testing based on allocation rates or accrual rates?

Answer: Accrual Rates

3) For EACH of the HCE's, what is their rate group's ratio percentage? Or is 45% for each of them?

Answer: I have 3 HCE's and their rate group Ratio % is:

HCE # 1 30%

HCE # 2 90%

HCE # 3 45%

Since two of the rate groups are not greater than 70%, do I still need to pass the average benefits test?

[Tom Poje]

since one or more of the HCEs ratio % is less than 70% (but at least greater than the midpoint) then you need to pass the average benefits % test as well.

[ak2ary]

Probably an unnecessary clarification but..

You keep asking if they need to pass the average benefits test

The answer is that they need to pass the average benefits PERCENTAGE test ... the third part of the average benefits test

(In your case they pass the other two also, but don't need to.)

[austin3515]

Well if we're really going to be thorough:

1) Reasonable Classification Test: Not applicable

2) Nondiscriminatory Classification Test: Must be passed for each individual rate group, substituting mid-point for "facts and circumstances."

3) Average Benefits Percentage Test: Must be passed for the Plan as a whole (well, controlled group as a whole, really).