55% average benefits test - testing groups

[Guest Sabadee!]

We are sitting on a failing preliminary test according to our vendor. When I read the regs., it cross references 410(b) under 129(d)(9)(A) for rules on excludable employees. Our plan allows everybody in immediately and our vendor insists that as such, all must be included in the test. However, for 410(b) testing in qualified plans, I would be allowed to apply statutory exclusions (age 21/12 months of service), create two testing groups and test the groups separately. Our vendor is not offering this solution which would result in a much better result.

Does anyone have anything definitive which would prevent the application of "otherwise excludable" testing in a cafeteria plan? It seems reasonable to me that since they cross reference the reg. we should be able to apply guidance from the reg. for establishing our testing groups.

[J Simmons]

I'm with your provider on this one.

IRC § 129(d)(9)(A) allows exclusion from the IRC § 129(d)(8)(A) 55% testing consideration, "subject to rules similar to the rules of section 410(b)(4), employees who have not attained the age of 21 and completed 1 year of service (as defined in section 410(a)(3))".

The IRC § 410 testing methods are not incorporated into IRC § 129(d) by reference, just the rules as to which employees may be excluded from the 55% testing of IRC § 129(d)(8)(A).