Testing Benefits, Rights and Features

[Guest Spock]

Our company DB plan has two BRFs for a select group of people based on age and service. When performing general non-discim testing, we determined that the safe harbor percentage is 30.50%, the unsafe harbor percentage is 20.50%, and the mid-point is 25.50%. The non discriminatory classifcation test for the two BRFs yielded coverage ratios of 21.12% and 21.71%.

TR 1.410(b)-4©(3)(B)(ii) states that the classification is nondiscriminatory only if the Commissioner finds that the the classification is nondiscriminatory based on all the relevant facts and cicumstances. We only test every three years.

Q1) Does that mean that an application needs to be made to the IRS for a ruling on whether the clasificaion is non-discriminatory, or can we make that judgment call ourselves.

Q2) The BRF is an inexpensive early retirement supplment and a death benefit. It seem reasonable to me to expand the eligiblity for these BRFs to increase the coverage percentage so it is above the safe harbor percentage. That seems less expensive and less painful than trying to get a determination that the classification is nondiscriminatory.

Anyone care to share their insight?

LL&P.

[AndyH]

Not sure you meet the criteria to allow testing only every 3 years. (my emphasis)

From Revenue Procedure 93-42

SEC. 5. THREE-YEAR TESTING CYCLE

An employer may rely for the two succeeding plan years on the tests substantiating that a plan complies with the

nondiscrimination requirements for a plan year if the employer reasonably concludes that there are no significant

changes subsequent to the test (e.g., significant changes in plan provisions, the employer's workforce, or

compensation practices). For this purpose, whether a change is significant depends upon the relative margin by

which the plan has satisfied the nondiscrimination requirements in the most recent year in which the plan was

tested and the likelihood that the change would eliminate that margin.

It isn't clear that you have a passing test to start with.

I would not act as Commissioner if I were you.

Your solution seems quite logical.