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ACP and 410(b) testing


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We are doing some compliance work for a 403(b) plan that contains language that states that for 403(b) contributions, covered employees exclude employees who do not elect to contribute more than $200 for the year. The prior TPA did not include these employees on the 5500 count information, which put the count below the audit threshold. However, they did include them as zeroes in the ACP test. This doesn't seem right. Does anyone know how this should work? Also, what about 410(b)? Will these excluded employees be counted as not benefitting or just disregarded for coverage? Thanks!

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I agree it doesn't look right. But I think their mistake is in the participant count.

I don't see those who did not elect to defer more than $200 as being excluded from participation. They still have the option of electing to defer more than $200, so they are still participants. The plan is just making them elect to defer at least $200 for the year before they are allowed to defer. The 5500 instructions don't mention 403(b) plans, but do say that an active participant includes someone eligible to elect to defer in a 401(k). I don't see why it would be any different with a 403(b) plan.

If they meet any other conditions required to receive the match, they will also be eligible employees under 1.401(m)-5 and included in the ACP test.

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