Non-discrimination Testing

[AJ North]

Hello Forum

We’ve been going back and forth about this one. ACP is the “exclusive” discrimination test according to the EOB. It is acknowledged that if a match does not pass ACP you can’t use 401(a)(4) general non-discrimination in lieu of ACP.

Question: if a plan wanted to allocate an employer match to 6 separate groups of employees using a different formula for each group (none have union ees) would they need to perform rate group testing (and pass) for each matching formula or would the ACP be the only test that needs to be passed to prove and fix discrimination. One would guess here that if the HCE are being allocated a more generous match, the test would fail proportionally thereby “curing any discrimination”.

Thank you for responding

[Tom Poje]

you actually have 2 tests:

1. The ACP test - everyone, 1 test

2. BRF - each group/division must be tested.

the typical example is match based on svc e.g. 25% for less than 5 years

5 - 10 years 50%,

11-15 years - 75%

more than 15 years 100% match.

if you have 6 groups/formulas then you have 6 BRF tests

so how many people get at least a 25% match - everyone, so thats 100% formula 1 passes

now, looking at group how many people get at least 50%? that means anyone with less than 5 years is included and not benefitting.

etc

etc.

[AJ North]

you actually have 2 tests:

1. The ACP test - everyone, 1 test

2. BRF - each group/division must be tested.

the typical example is match based on svc e.g. 25% for less than 5 years

5 - 10 years 50%,

11-15 years - 75%

more than 15 years 100% match.

if you have 6 groups/formulas then you have 6 BRF tests

so how many people get at least a 25% match - everyone, so thats 100% formula 1 passes

now, looking at group how many people get at least 50%? that means anyone with less than 5 years is included and not benefitting.

etc

etc.

[AJ North]

Thank you for responding, this is just as I thought.

1. Which test should be performed first; ACP or BRFs?

2. To expand the original question: let's say that you need to combine 2 401(k) plans of related employers to pass coverage. Would also have to do BRF an testing on all aspects of the plan provisions including NRA, ERA and distribution options where they may be different? Or could you limit the BRF to just contribution formulas and/or the right to make a contribution.

Thank you again.