ACP test eligibility

[fiona1]

401(k) plan provides a match - but in order to receive a match a participant must defer a minimum of 3% of pay.

So if John defers 2.5% he'll receive no match at all. If Barry defers 3.5%, he'll receive a match of 50%.

So my question - is John going to be on the ACP test? I know that in order to be on the ACP you must be eligible for the 401(m) provision of the plan. I can see it both ways. John was eligible for the 401(m) provision because he didn't defer 3%. On the other hand, he had the ability to defer 3% - so maybe he should be on the test.

Any thoughts?

[cpc0506]

401(k) plan provides a match - but in order to receive a match a participant must defer a minimum of 3% of pay.

So if John defers 2.5% he'll receive no match at all. If Barry defers 3.5%, he'll receive a match of 50%.

So my question - is John going to be on the ACP test? I know that in order to be on the ACP you must be eligible for the 401(m) provision of the plan. I can see it both ways. John was eligible for the 401(m) provision because he didn't defer 3%. On the other hand, he had the ability to defer 3% - so maybe he should be on the test.

Any thoughts?

My thought is if John has met the eligibility requirements of age and service of the match, he should be in the test. Does the plan pass the coverage test when you comparing those benefitting to those not? But maybe my thinking is too simple.

[fiona1]

The plan has immediate entry for both deferrals and match. John is going to be considered "not benefiting" for the M coverage test. But overall, the plan passes coverage on both the K and M portions of the plan.

Some plans will have a year-end requirement for the match. If a participant terminates and is not eligible for the match, they are not included on the ACP test - as they were not eligible for the 401(m) portion of the plan.

John didn't receive a match because he didn't meet a plan requirement. The requirement being - deferring 3% of pay.

[Tom Poje]

I lean towards including them on the following grounds:

you formula sounds something like this (I'll change it a little):

0% match for those who defer 0 - 3%

25% match for those deferring 3 - 5%

50% match for those deferring 5 - 7%

now I know you can't do that if you were to change % to years of service (or I seem to recall), because it becomes a disguised eligibility

but, that being said, now that I put that down, I think something similar was discussed many moons ago and I don't recall the result of that discussion.

[fiona1]

I looked at the definition of "eligible employee" for the ACP test in §1.401(m)-5. It says that if an employee must perform additional service - then the employee would not be eligible for the ACP if they didn't meet the service requirement(s). But in this example - the lack of a match is not due to service. So I agree that John would be included on the ACP test. Thanks for everyone's help....