Average Benefit Test and Terminees

[zimbo]

I am running an average benefit test for a plan that is narrowly failing the 70% rate group coverage test. Although the plan is a DB, the same question would pertain to a DC plan. I am using the "accrued to date" measurement period for the average benefit accrual rates. I have a participant who terminated in the plan year with more than 500 hours but less than 1,000 hours and who had no benefit accrual for the year but did accrue benefits in the prior 3 plan years. Does he still have a normal benefit accrual rate using the "accrued to date" measurement period?

I would think that he would because he does have an accrued benefit and he is not an excludable employee for the year being tested.

Any thoughts pro or con?

[ERISAnut]

I agree with you. The question becomes "on what basis would you not?" That appears to be the point of the accrued to date testing option. As you outlined: 1) Nonexcludable employee with 2) a benefit amount calculated under the method being used (which is an acceptable method).

I do not think just because another method of calculation that would yield a zero would be a consideration when that method is not being used. Your concern is that does that fact the the participant received no accrued benefit for the year preempt this? It doesn't, because that is the point of the option to test under the accrued to date method.

Hope this helps.

[Guest DFerrare]

I disagree. The calculation of benefit percentages for the average benefits test is based on the 401(a)(4) regulations. -12 of the (a)(4) regulations defines an employee for purposes of calculating benefit or accrual rates as an employee who benefits during the plan year. Not benefiting, no accrual rate.

[AndyH]

Good question.

I'm with DFerrare. The person would be a 0% in the NCT of a general test because he is not benefitting. And 1.410(b)-5(d)(5) says the employee benefit percent "is the percent ....that would be determined for that employee for purposes of applying the general test .....if all the plans in the testing group were combined"

[zimbo]

Good point all around.

I do see the section in the a4 regs defining employee and that is clear and convincing to me.

But, I did not see the language you refer to in 1.410(b)-5(d)(5). In (b)-5© it does refer to employees and to nonexcludable employees. Those terms are defined in 1.410(b)-9 in a way that differs from the a4 regs in that it does not require that an employee benefit under the plan in order to be considered for the rate group test. Do you think that could be interpreted to mean that such a non-benefitting non excluable employee could have an accrual rate for Average Benefit Test purposes while not having one for non discrimination rate group purposes?

[Guest DFerrare]

1.410(b)-5(d)(5) says "...The employee benefit percentage for an employee for a testing period is the rate that would be determined for that employee for purposes of applying the general test for nondiscrimination in" sections 1.401(a)(4)-2, -3, -8 or -9.... it seems to me that the accrual rate would be the same for the ABT or the general test.

[AndyH]

I don't seen any ambiguity:

§1.410(b)-5. Average benefit percentage test

(a) General rule. --A plan satisfies the average benefit percentage test of this section for a plan year if and only if the average benefit percentage of the plan for the plan year is at least 70 percent. A plan is deemed to satisfy this requirement if it satisfies paragraph (f) of this section for the plan year.

(b) Determination of average benefit percentage. --The average benefit percentage of a plan for a plan year is the percentage determined by dividing the actual benefit percentage of the nonhighly compensated employees in plans in the testing group for the testing period that includes the plan year by the actual benefit percentage of the highly compensated employees in plans in the testing group for that testing period. See paragraph (d)(3)(ii) of this section for the definition of testing period.

© Determination of actual benefit percentage. --The actual benefit percentage of a group of employees for a testing period is the average of the employee benefit percentages, calculated separately with respect to each of the employees in the group for the testing period. All nonexcludable employees of the employer are taken into account for this purpose, even if they are not benefiting under any plan that is taken into account.

(d) Determination of employee benefit percentages

(1) Overview. --This paragraph (d) provides rules for determining employee benefit percentages. See paragraph (e) of this section for alternative methods for determining employee benefit percentages.

(2) Employee contributions and employee-provided benefits disregarded. --Only employer-provided contributions and benefits are taken into account in determining employee benefit percentages. Therefore, employee contributions (including both employee contributions allocated to separate accounts and employee contributions not allocated to separate accounts), and benefits derived from such contributions, are not taken into account in determining employee benefit percentages.

(3) Plans and plan years taken into account

(i) Testing group. --All plans included in the testing group under §1.410(b)-7(e)(1), and only those plans, are taken into account in determining an employee's employee benefit percentage.

(ii) Testing period. --An employee's employee benefit percentage is determined on the basis of plan years ending with or within the same calendar year. These plan years are referred to in this section as the relevant plan years or, in the aggregate, as the testing period.

(4) Contributions or benefits basis. --Employee benefit percentages may be determined on either a contributions or a benefits basis. Employee benefit percentages for any testing period must be determined on the same basis (contributions or benefits) for all plans in the testing group.

(5) Determination of employee benefit percentage

(i) General rule. --The employee benefit percentage for an employee for a testing period is the rate that would be determined for that employee for purposes of applying the general test for nondiscrimination in §§1.401(a)(4)-2, 1.401(a)(4)-3, 1.401(a)(4)-8 or 1.401(a)(4)-9, if all the plans in the testing group were aggregated for purposes of section 410(b).

[zimbo]

I agree with you. The result is 0 for the Ave Benefit Test and for the Rate Groups. Thanks to all. Now if only we could all solve the AFTAP dilemma!!