Benefits Rights and Features (BRF) Testing – Match True-Up To Actives Only

[buckaroo]

I have a plan that has the following eligibility and entry date requirements for the match portion of the plan: 1 Year of Service, entering monthly. The match portion of the plan has no allocation conditions for the match allocated on a payroll by payroll basis. Additionally, the match portion of the plan allows for a “true-up” contribution for all eligible participants who are actively employed on the last day of the plan year OR terminated during the year due to death, disability or leave of absence.

Based on the above:

1) The plan has no coverage issue for the match portion of the plan as there is no allocation condition to receive “regular” match. Therefore, disregarding any excluded employees, 100% coverage.

2) The plan has a BRF issue due to the fact that there is an allocation condition related to the match “true-up” contribution.

3) In order to satisfy the BRF testing for the match issue, the plan only needs to satisfy the Availability test.

4) There are two portions to the Availability test: Effective Availability and Current Availability

5) The Effective Availability test is a “facts and circumstances test” and it states, that based on all of the relevant facts and circumstances, the group of employees to whom a benefit, right, or feature is effectively available must not substantially favor HCEs. Based on the allocation conditions of the match “true-up”, the plans appears to pass the Effective Availability portion of the Availability test.

6) The Current Availability test is a mathematical test which is run virtually the same way as a ratio test for coverage testing. (The ratios for the NHCEs and the HCEs is calculated by taking the number of participants for who the BRF is available divided by the total number of participants who are not excludable under coverage.) The Current Availability test is passed if the ratio calculated greater than the safe harbor percentage defined in §1.410(b)-4©(4)(iv).

Does anyone disagree with the above six points?

Question: If the plan sponsor excludes a division from it definition of eligible employees (and does not allow them to participate), do they have to be included in the denominator of the BRF ratio calcs? (I think the answer is yes, but would like verification.)

If anyone else has any additional information that they think would be helpful for the above, please feel free to supply it. Thanks in advance.

[Laura Harrington]

I have a plan that has the following eligibility and entry date requirements for the match portion of the plan: 1 Year of Service, entering monthly. The match portion of the plan has no allocation conditions for the match allocated on a payroll by payroll basis. Additionally, the match portion of the plan allows for a “true-up” contribution for all eligible participants who are actively employed on the last day of the plan year OR terminated during the year due to death, disability or leave of absence.

Based on the above:

1) The plan has no coverage issue for the match portion of the plan as there is no allocation condition to receive “regular” match. Therefore, disregarding any excluded employees, 100% coverage.

2) The plan has a BRF issue due to the fact that there is an allocation condition related to the match “true-up” contribution.

3) In order to satisfy the BRF testing for the match issue, the plan only needs to satisfy the Availability test.

4) There are two portions to the Availability test: Effective Availability and Current Availability

5) The Effective Availability test is a “facts and circumstances test” and it states, that based on all of the relevant facts and circumstances, the group of employees to whom a benefit, right, or feature is effectively available must not substantially favor HCEs. Based on the allocation conditions of the match “true-up”, the plans appears to pass the Effective Availability portion of the Availability test.

6) The Current Availability test is a mathematical test which is run virtually the same way as a ratio test for coverage testing. (The ratios for the NHCEs and the HCEs is calculated by taking the number of participants for who the BRF is available divided by the total number of participants who are not excludable under coverage.) The Current Availability test is passed if the ratio calculated greater than the safe harbor percentage defined in §1.410(b)-4©(4)(iv).

Does anyone disagree with the above six points?

Question: If the plan sponsor excludes a division from it definition of eligible employees (and does not allow them to participate), do they have to be included in the denominator of the BRF ratio calcs? (I think the answer is yes, but would like verification.)

If anyone else has any additional information that they think would be helpful for the above, please feel free to supply it. Thanks in advance.

I agree with 1-4 and #6. For #5, I would ask....did the NHCEs know that if they are employed on the last day of the year they are eligible for match true-up (was it in the SPD or communicated some other way)? Or was that something only the owners or those in upper management knew about? That is the only thing I can think of in this situation that might affect the ability to satisfy effective availability.

With regards to your other question, yes, the denominator would be the same as you use for coverage testing. So if the excluded employees do not fall into a category of employees who are excludable for coverage testing, they are included in the denominator.