Top Paid Group Section 125 Testing

[Guest John14]

I am trying to understand the non-discrimination rules for Section 125 plans. I'd like to first understand how the top paid group election is done. I get conflicting advice as to whether the top paid group election needs to be mentioned in the plan doc.

Second, can someone shed some light in terms of, if a top paid group approach is used for one Section 125 plan, does it have to be consistent with all other ERISA plans, including the defined contribution plan also?

Thanks.

[ETA Consulting LLC]

Apparently, consistency is required with respect to the top-paid group (e.g. if you use it for one, then you must use it for all plans, including non-retirement plans). An HCE for retirement plans (as defined in 414q) is included, among other things, in the awkward definition of a 125 plan. Therefore, when you apply the 414(q) definition for your qualified plans, this same definition transitions to any other plan that references 414(q) with respect to the use of the top-paid group (or, at the very least, the classes that are excluded in arriving with the final number to be included).

Had Section 125's definition of HCE not referenced HCEs for qualified plans, I would view it differently. I do understand the conflicting opinions you get, as I am pretty conflicted about it myself

Good Luck!

[Guest John14]

Thank you. I had a client state, "I am definitely not an authority on the subject," referring to the non-discrimination testing. He would realize what an understatement that is if knew even the experts have such a tough time.

[ETA Consulting LLC]

Thank you. I had a client state, "I am definitely not an authority on the subject," referring to the non-discrimination testing. He would realize what an understatement that is if knew even the experts have such a tough time.

True! If he knows enough to ask this type of question, then he's in good shape

[Guest morris]

Your first question: Are you asking how is the top paid group determined? That's one thing. But your second sentence seems totally unrelated by asking if the top paid group "election"(?) should be mentioned in the plan documents. It would seem to me that a simple statement that the plan will comply with the anti-discrimination requirements of section 125 would suffice.

Your second question: I don't think there is a rule that states "the top paid group election must be the same for all ERISA plans" (your 125 plan is not an ERISA plan). You make each plans determination based on the requirements of the code section referenced in the code governing that plan. If different plans happen to refer to the same section of the code for a particular definition/determination, then so be it. Naturally, that determination would be exactly the same as all other determinations refering to the same code section.

[Guest John14]

I can manipulate the census in an HCE v. non-HCE and a top paid group configuration. The question is how if the election made? One TPA says it does not need to be in the plan doc - not sure about this.

I believe Section 125 plans do fall under ERISA if the underlying plan is an ERISA plan (i.e., medical). And I believe the testing for Section 129 plans mention HCEs in the benefits test.

I am trying to see the consequences of choosing the top paid group election. I am trying to avoid fixing one problem and creating another (qualified retirement testing).