Component Plans and ABT

[Guest Inquiring Mind]

The regulations under 401(a)(4) state that a component plan is deemed to pass the ABPT if the plan of which it is a part satisfies the ABPT. I have a plan that satisfies the ABPT on a cross-tested basis. If I can restructure the plan into component plans and somehow satisfy the general test on a contributions basis for each of the component plans, am I all set? Satisfying the ABPT on a cross-tested basis doesn't throw me into a gateway contribution requirement, does it?

[Laura Harrington]

The regulations under 401(a)(4) state that a component plan is deemed to pass the ABPT if the plan of which it is a part satisfies the ABPT. I have a plan that satisfies the ABPT on a cross-tested basis. If I can restructure the plan into component plans and somehow satisfy the general test on a contributions basis for each of the component plans, am I all set? Satisfying the ABPT on a cross-tested basis doesn't throw me into a gateway contribution requirement, does it?

Using cross-testing for the ABPT test does not require you to meet the gateway minimum. Gateway minimum is only required if you use cross-testing for the rate-group test.

[Guest Inquiring Mind]

Thanks, I was generally aware of that but wasn't sure if it extended to a situation where passing coverage was a requirement of passing nondiscrimination, as it is when restructuring a plan into component plans.

Anybody have any thoughts on whether it is sufficient when restructuring if the plan as a whole satisfies the ABPT? I have seen several prior posts that discussed the difficulty of satisfying the nondiscriminatory classification test for the component plan because the component plan might not be a reasonable classification of employees, which led me to wonder whether I am interpreting the discrimination regulations correctly.

[Blinky the 3-eyed Fish]

Each component must satisfy the ratio percentage test for coverage (410(b)). If not, you can't pass coverage for either component because chances are the selection of the people in each component won't pass the reasonable classification test needed to satisfy the ABPT for coverage.

[Guest Inquiring Mind]

Thanks, Blinky. The light bulb just went on. To answer my own question:

Although the regulations state the component satisfies the ABPT if the plan of which it is a part satisfies the ABPT, in order to satisfy coverage, you have to satisfy both the ABPT and the nondiscriminatory classification test. And if the component plans were structured arbitrarily, you won't be able to satisfy the nondiscriminatory classification test, so each component plan will generally have to satisfy the ratio percentage test.

[Blinky the 3-eyed Fish]

There are a few little things I could nitpick as to what you said, but it's generally semantics. Your last sentence is entirely correct and sums it up though.

[Tom Poje]

as a general rule, when you split plans into component plans, you are testing one group on an allocations basis and another on an accrual (or cross tested ) basis. I'm not sure how you avoid the gateway once you hop into that land.

in addition, see 1.401(a)(4)-9©(3)(ii) which clearly states you acn not avoid the gateway by restructuring into component plans.