QNECs and statutorily exludable employees under final 401(k) regs

[AndrewZ]

The 2006 regulations regarding "disproportionate contributions" (applicable to "targeted" or "bottom-up" or fixed-dollar QNECs) can be separately applied to excludable and non-excludable employees (considered separate "plans" under the regs), can't they? It seems they could be, but I haven't been able to find any direct reference to it. I understand that the plan document would have to allow for this. Otherwise, fixed percentage allocations would also be subject to the restrictions, and allocations would be made to NHCEs not included in the failing test.

[ETA Consulting LLC]

Not sure, exactly, what you are asking. There are several rules you would piece together. I am assuming you have a failed test (where the employee population is being tested separately for statuory excludables); so let's run with that.

Two rules are in play here:

1) The rule you are referring to that in order to the amounts that are "targeted" to the lower paid individuals to be used in the ADP/ACP tests, then certain conditions must be met with respect to how many receives what amount.

2) ANY contribution allocated to the plan must be made pursuant to a definitely determinable allocation formula. This is likely speaking to your document issue. If the 21 & 1 group fails ADP and you wish to target a QNEC in order to get them to pass, then the formula by which that QNEC is targeted "must" be written to exclude members of the "early entrant group"; or it won't be definitely determinable.

I think that is what you are getting at.

Good Luck!

[Tom Poje]

I suppose, in a round about way, EPCRS (Rev Proc 2008-50) Appendix A.03 (Regarding fixing ADP/ACP test late)

"...Under this correction method, a plan may not be treated as two separate plans, one covering otherwise excludable...in order to reduce the number of employees eligibile to receive QNECs..."

so if you are correcting things late, the answer is NO.

but the above implies, at least to me, if done timely, then yes, you can provide QNECs just to the statutory includable.

But you still have to follow the terms of the document.

[Kevin C]

The reference you are looking for is probably the definition of "plan" in 1.401(k)-6. It sends you other places, but basically ends up saying the aggregation/disaggregation used for 410(b) testing determines what the "plan" is for ADP/ACP testing.

If you are testing the otherwise excludables separately and want the targeted QNEC to only go to members of that group, I agree the document would have to say that. If it doesn't, you should still be able to use the targeted QNEC, but may have to give the QNEC to some non-excludables if that is what the document says.

[AndrewZ]

Thanks, everyone. My question WAS specifically about whether allocations had to be made to excludable employees under the 2006 regs. The reference to disaggregated groups being separate plans specifically for ADP testing seems key. Interesting that it's not allowed under EPCRS!