Average Benefit Percentage Test and Imputing Permitted Disparity

[Guest ckharper]

Have a DB plan and a Profit-Sharing Plan with 401(k). Running the Average Benefit Percentage Test. Plans are mandatorily aggregated and will be cross-tested. Not sure if will do on an allocation or accrual basis. Under Treas. Reg. 1.401(a)(4)-9(b)(2)(iii), imputation of permitted disparity is only applied to determine the aggregate normal allocation rate or the aggregate normal accrual rate. Thus, as I understand, you would determine the aggregate rate for each employee and then impute the permitted disparity. However, the imputation of permitted disparity is not allowed for the 401(k) portion. Therefore, it seems that you determine the aggregate rate, then remove the 401(k) portion, then impute disparity to all but the 401(k) portion and then add the 401(k) portion back. Is this correct and exactly how is this done? Examples would be welcomed.

[AndyH]

Yes, you have stated it correctly. You have to determine the EBAR/Allocation rate associated with the deferrals, subtract that from the aggregate EBAR, inpute, then add the deferral EBARAllocation rate back in.