Average benefit % of General Test and 401(k)

[flosfur]

Can one (or must one) use the employees' 401(k) deferrals for the average benefit % test of Reg section 1.410(b)-5, especially when doing the 401(a)(4) nondiscrimination test?

Reg section 1.410(b)-5(d)(2) clearly states that employee contributions and employee-provided benefits must be disregarded! There is no "unless otherwise provided elsewhere..." in this subsection!

S1.410(b)-7©(1) requires mandatory disaggregation of 401(k), 401(m) ...

S1.410(b)-7(d)(2) further dictates that the plans which are disaggregated under S1.410(b)-7© may not be aggregated ....

Yet, I have seen 401(k) deferrals used for average benefit % test!? So which code/reg section permits or requires aggregation for this purpose?

[PensionPro]

One must use employees' 401(k) deferrals in the ABPT. Disregard after-tax employee contributions and catch-up.

1.410(b)-7(e) Determination of plans in testing group for average benefit percentage test—(1) In general. For purposes of applying the average benefit percentage test of §1.410(b)–5 with respect to a plan, all plans in the testing group must be taken into account. For this purpose, the plans in the testing group are the plan being tested and all other plans of the employer that could be permissively aggregated with that plan under paragraph (d) of this section. Whether two or more plans could be permissively aggregated under paragraph (d) of this section is determined (i) without regard to the rule in paragraph (d)(4) of this section that portions of two or more plans benefiting employees of the same line of business may not be aggregated if any of the plans is tested under the special rule for employer-wide plans in §1.414®–1©(2)(ii), (ii) without regard to paragraph (d)(5) of this section, and (iii) by applying paragraph (d)(2) of this section without regard to paragraphs ©(1) and ©(2) of this section.

Hope this helps.

[PensionPro]

1.401(k)-1(4)(ii) Treatment of elective contributions as employer contributions. Except as otherwise provided in §1.401(k)–2(b)(3), elective contributions under a qualified cash or deferred arrangement (including designated Roth contributions) are treated as employer contributions.

[flosfur]

One must use employees' 401(k) deferrals in the ABPT. Disregard after-tax employee contributions and catch-up.

1.410(b)-7(e) Determination of plans in testing group for average benefit percentage test—(1) In general. For purposes of applying the average benefit percentage test of §1.410(b)–5 with respect to a plan, all plans in the testing group must be taken into account. For this purpose, the plans in the testing group are the plan being tested and all other plans of the employer that could be permissively aggregated with that plan under paragraph (d) of this section. Whether two or more plans could be permissively aggregated under paragraph (d) of this section is determined (i) without regard to the rule in paragraph (d)(4) of this section that portions of two or more plans benefiting employees of the same line of business may not be aggregated if any of the plans is tested under the special rule for employer-wide plans in §1.414®–1©(2)(ii), (ii) without regard to paragraph (d)(5) of this section, and (iii) by applying paragraph (d)(2) of this section without regard to paragraphs ©(1) and ©(2) of this section.

Hope this helps.

That helps a lot, thanks.

If one is using the Accrued to Date testing for the DB plan then must one use the deferrlas' account balances or the current year deferrals only or can one use either?

[AndyH]

It is not true that deferrals must be included in all cases.

Unless the plan is being cross tested (DB on contributions basis or DC on benefits basis), a plan of a different type (i.e. a DC plan when testing a DB plan) may be ignored for purposes of the Average Benefits Test. See 1.410(b)-5(e)(3)

Except for some small plans, including the deferrals usually helps though.

[flosfur]

It is not true that deferrals must be included in all cases.

Unless the plan is being cross tested (DB on contributions basis or DC on benefits basis), a plan of a different type (i.e. a DC plan when testing a DB plan) may be ignored for purposes of the Average Benefits Test. See 1.410(b)-5(e)(3)

Except for some small plans, including the deferrals usually helps though.

But 1.410(b)-7(e) overrides that when it comes to avergae benefit test. See PensionPro's posting above.

[flosfur]

One must use employees' 401(k) deferrals in the ABPT. Disregard after-tax employee contributions and catch-up.

1.410(b)-7(e) Determination of plans in testing group for average benefit percentage test...

Hope this helps.

Follow up observation/question:

1.401(a)(4) & 1.410(b) regs were written when elective deferrals were considered employer contributions.

Under PPA 2006, elective deferrals don't count towards employer's deduction which effectively makes them non-employer contributions. Given this, shouldn't the average benefit test for 1.401(a)(4) (and the rule in 1.410(b)-(e)) be applied ignoring the elective deferrals?

Has this been addressed somewhere?

[flosfur]

One must use employees' 401(k) deferrals in the ABPT. Disregard after-tax employee contributions and catch-up.

....

Hope this helps.

Do you have guidance cite for excluding the Catch-up contributions?

Thanks.

[AndyH]

flosfur, I have to respectively disagree.

1.410(b)-5(e)(3) is a testing option, not a plan aggregation rule. Pensionpro's cite is the starting point to determine the coverage group, which I do not disagree with. 5(e)(3) is a testing option once the coverage group has been determined.

We'll have to agree to disagree.