When can an EBAR be used?

[Guest fender5150]

Is there a flowchart or a decision matrix out there somewhere that provides guidance regarding when an EBAR calculation can be used and when it cannot?

Thanks in advance for your feedback.

[Ron Snyder]

An EBAR can be used to order an EDRINK over the internet.

[Tom Poje]

the term E-BAR, stands for Equivalent Benefit Accrual Rate.

so you are simply converting a contribution to an equivalent benefit at retirement and dividing by the compensation to determine the rate. There is nothing to prevent or stop you from doing this anytime (unless I guess you are talking about an ESOP which is forbidden - well, you can still do it, but it doesn't help in this business).

For 'business' purposes there wouldn't be much reason for calculating E-BARs unless you are failing nondiscrimination testing - otherwise you are spending your time doing something which isn't necessary.

unless I am missing something in the question you are asking.

[K2retire]

An EBAR can be used to order an EDRINK over the internet.

...a subject discussed at length with some of my colleagues while attending a Larry Deutch symposium a few years ago.

[Tom Poje]

was that simply discussed, or was an attempt made to test it in actual practice?

[K2retire]

As I recall, it was also an attempt to see whose room (among the 3 from the same employer) could run up the highest mini bar charges. Does that count as a test in practice?

[Kevin C]

You can test 401(a)(4) on the basis of equivalent benefits if the plan document allows it. Note, GUST prototypes are not allowed to test using equivalent benefits.

[Guest fender5150]

Thanks for your comments, and for the corny joke about Edrinks. It caught me at just the right time, 'cause I actually laughed out loud!

So an EBAR can be used in any test that involves employer contributions, so long as the Plan Document allows it. IE:

• Gateway Minimum? 401(a)
  
• Average Benefits Percentage Test? 410(b)
  
• ACP test? 401(m)
  

[J Simmons]

I thought an EBAR (i.e., x-testing) could be used to demonstrate non-discrimination even in a plan that does not specify such (i.e., the non-x-testing plan provisions are followed, but the plan would fail conventional testing and thus x-testing could yet be used to show non-discrimination). Has this use of x-testing been prohibited?

[Kevin C]

For GUST Prototypes, I was referring to Rev Proc 2000-20 section 8.03, 7.

03 Areas Not Covered by Opinion Letters --Opinion letters will not be issued for:

7 Defined contribution plans under which the test for nondiscrimination under §401(a)(4) is made by reference to benefits rather than contributions;

[Tom Poje]

the ADP test is the exclusive nondiscrimination test for deferrals

the ACP test is the exclusive nondiscrimination test for matching contributions

E-BARs show up in the avg ben pct test (which includes all contributions including deferrals, match but no catch ups)

this test may be helpful to pass coverage. no gateway is needed. you are not testing for nondiscrimination, you are testing coverage.

E-BARs also show up if the rate group test. strictly based on nonelective contributions. and you have to pass gateway before running the gateway test.

the plan document does not have to allow for testing

however there are some considerations:

you can't simply give someone the gateway minimum. that is document driven. and my understanding is that the document must specify which of the gateways you will use.

if testing for coverage AND the document contains failsafe language, then you can not use the average benefits percentage test.

[buckaroo]

the plan document does not have to allow for testing

however there are some considerations:

you can't simply give someone the gateway minimum. that is document driven. and my understanding is that the document must specify which of the gateways you will use.

Tom,

Can you clarify this point? For "give the gateway min", I thought if you were going to cross test, you had to increase the cont to anyone who was not receiving the gateway to stay in compliance? If not, you would not be able to cross test.

Also, "must specify which of the gateway you will use" I thought this was a restriction for M&P plans only. Is this correct? Also, can you point out the reg for this item? I thought this was removed, but apparently not. So any help would be greatly appreaciated.

[buckaroo]

I just found the language specifying that the method of satisfying the gateway must be stated in the doc in LRM 94. Sorry for the confusion.

[J Simmons]

the plan document does not have to allow for testing

however there are some considerations:

you can't simply give someone the gateway minimum. that is document driven. and my understanding is that the document must specify which of the gateways you will use.

if testing for coverage AND the document contains failsafe language, then you can not use the average benefits percentage test.

If the plan does not contain the failsafe language, would an -11g do the trick for specifying a method of gateway and to make it for that already ended plan year?

[Tom Poje]

buckaroo, thanks for finding the source. I couldn't think of what it was and I was too lazy to look it up. for those who are interested, the LRM states

If a sponsor wishes to use other gateways, it is important to ensure that the benefits

provided under the plan remain definitely determinable. In order for plan benefits

to remain definitely determinable, the plan document should specify which

gateway is used. The plan document could allow adopting employers to elect

between different gateways, but in order to provide definitely determinable

benefits it is not sufficient for the plan document merely to specify that one of the

gateway requirements will be satisfied.

lets not confuse failsafe language with gateway language.

failsafe language ensures a plan will pass coverage, basically it says keep bringing in bodies until you pass the ratio % test for coverage. (That is why you cant use the average benefits test for coverage when you have fail safe language)

gateway language is for nondiscrim testing, and yes, if such language is not in the document (e.g. you haven't restated yet), then you use an -11g amendment to satisfy the requirements.

[Mike Preston]

Note that LRM94 is only applicable to M&P plans, not volume submitter or individually designed plans.

[Tom Poje]

but logic would say if the IRS feels an M & P would need such language to be definitely determinable, then it would only be logically for other plans to contain similar language...oh, we are talking logic and IRS. maybe that doesn't follow.

[Mike Preston]

I guess we'll find out in the NEXT CYCLE. For now, I've got a DC volume submitter plan that is being amended and restated by clients by some time in 2010 and the new version won't be adopted until, what, 2016? Talk to me then.

[Guest fender5150]

the ADP test is the exclusive nondiscrimination test for deferrals

the ACP test is the exclusive nondiscrimination test for matching contributions

E-BARs show up in the avg ben pct test (which includes all contributions including deferrals, match but no catch ups)

this test may be helpful to pass coverage. no gateway is needed. you are not testing for nondiscrimination, you are testing coverage.

E-BARs also show up if the rate group test. strictly based on nonelective contributions. and you have to pass gateway before running the gateway test.

the plan document does not have to allow for testing

however there are some considerations:

you can't simply give someone the gateway minimum. that is document driven. and my understanding is that the document must specify which of the gateways you will use.

if testing for coverage AND the document contains failsafe language, then you can not use the average benefits percentage test.

Thank you for this clarification!

So an EBAR cannot be used to show compliance with the ACP test when it fails under the normal method?

[J Simmons]

Nope.

[AndyH]

"So an EBAR cannot be used to show compliance with the ACP test when it fails under the normal method? "

For this, perhaps playing an E-Bow while sobbing and sipping an EDRINK would be more appropriate. Now, that is a song idea for Tom. "E-Bow the K test" to the tune of "E-Bow the Letter"

[Tom Poje]

The last thing you need to do is to try and fill my mind with ideas.

Its bad enough I heard Elvis ASPPA-resley may come out of hiding and make an appearence at the ASPPA conference.