Nondiscrimination testing - disaggregation

[Guest Rags]

Employer wants to enhance benefits to long-service participants.

They provide (a) 3% safe harbor contribution.

(b) 4% discretionary contribution and

© wants to provide an additional 1% of comp each year once the employee has reached 20 years of service.

Testing part © is the issue. Should (b) and © be tested together or is disaggregation permitted here? Does it matter?

[Jim Chad]

All of these are non-elective and need to pass 401(a)(4).

If I understand what you are asking, if you disaggregate, you will be basically rate group testing and yes that is allowed.

[Mike Preston]

If I understand what you are intending, then disaggregating is not an option.

[Jim Chad]

Mike's reply made me want to read your question again. And he is correct. You can not test the 1% separately from the 3% separately from the 4 %. These are all non-electives and must be tested together.

The closest thing you can do is rate group test on an allocation basis.

Test everyone who receives 8%

and test everyone who receives at least 7%

and test everyone who receives at least 4%

and test everyone who receives at least 3%

and test everyone who receives at least 1%

Mike, it has been a long week. Am I missing something?

[Guest Rags]

That was my thinking as well. I tested 1% alone and with the other benefits - the plan will pass either way. Had to cross test 1%, if disaggregated. I needed to make sure since my results may eventually make it into demo 6 with submission for determination letter.

I know that disaggregation must be done between 401(k), 401(m) and nonelective contributions. Wasn't sure if disaggregation is permitted among several nonelective contribs. Thanks for your input. Specific IRC citations welcomed.

[Mike Preston]

Well, if I understand things, I think you are making it more complicated than necessary. If we agree that the SH will be provided to everybody in the plan, then doesn't that establish a minimum for everybody of 3%? Certainly, a minimum for every NHCE of 3%. The next level is 7%. Finally, you have people who can get more than 7%.

BTW, as worded it sounds like somebody with 20 YOS would get 27%. Was that intended? Or was it that somebody with 21 YOS would get 8%, 22 YOS 9%, etc.

Hard to imagine that this wouldn't pass on a cross-tested basis, and with 7% between SH and discretionary it should satisfy gateway.

I think.

[Guest Rags]

Well, if I understand things, I think you are making it more complicated than necessary. If we agree that the SH will be provided to everybody in the plan, then doesn't that establish a minimum for everybody of 3%? Certainly, a minimum for every NHCE of 3%. The next level is 7%. Finally, you have people who can get more than 7%.

BTW, as worded it sounds like somebody with 20 YOS would get 27%. Was that intended? Or was it that somebody with 21 YOS would get 8%, 22 YOS 9%, etc.

Hard to imagine that this wouldn't pass on a cross-tested basis, and with 7% between SH and discretionary it should satisfy gateway.

I think.

The intention is that somebody with 21 YOS would get 8%, 22 YOS 9%, etc.

You are right on all other fronts. Thanks!

[Tom Poje]

interesting. so the gateway is satisfied using the gradual age or service schedule.

haven't seen many of those.

(well, granted the minimum contrib is already above 5%, but the formula itself meets the gradual service conditions)