creative nondiscrimination testing

[M Norton]

Client has a cross-tested plan that is failing.

It has been recommended to them that they put one HCE in a group by himself and test with a group of NHCEs based on contributions; then test the rest of the HCEs with the other group of NHCEs based on benefits. The two groups of NHCEs are already defined in the plan document. Can you group participants in a plan and test them in different ways?

[Mike Preston]

Of course you can. Keep in mind that if you select the groups to test by cherry picking, each group must satisfy 410(b) using the 70% test. But each group, once it passes 410(b), can use a different method of satisfying 401(a)(4): annual benefits, accrued to date benefits, contributions and repeat those three using permitted disparity. So, you could have 6 groups and six entirely different tests.

[John Feldt ERPA CPC QPA]

Also called component plans. If a gateway is needed for one component plan's cross-testing, then the gateway applies to the entire plan (not just that component) - I think. Works nicely if each person is in their own class so you aren't hurt too much by a few demographic changes each year, just be sure to get 70% for each component and make sure you've been careful about exactly who can and cannot be excluded in your nonexcludable employee count. Imputing disparity in one group and cross-testing the other is fairly common for component plans (IMO).

[Laura Harrington]

Yes, the gateway must be satisfied on a plan basis, and not just a component basis if any of the components will be tested using accrual rates.

We use this method of testing all the time. You might also see it referred to as restructuring. It is a very useful method for isolating the effect of a young HCE.

[K2retire]

Just be sure that your fees reflect the extra work this requires!