Rate group testing

[Belgarath]

Every time an answer seems obvious to me, that's when I get nervous that I'm missing something!

Here's the situation. Employer sponsors a deferral only 401(k) plan (or even if they had a match, for that matter). Currently there is no employer profit sharing contribution provided for under the plan.

They MAY want to amend the plan to provide for an employer contribution for only 2 NHC. There would NOT be any PS contribution for any HC, and not for any other NHC either.

So after you disaggregate the plans, you are just testing the PS, on an ALLOCATIONS basis - no cross testing, no gateway. Since no HC receives a contribution, then you automatically pass the rate group testing using the ratio test, right?

Am I suffering from brain cramp and missing something?

[Tom Poje]

I don't think you even have to go that far. Under the safe harbor provisions

arguably you have 1 formula for HCEs and 1 for NHCEs so you fall under the multiple formula rule

under 1.401(a)(4)-2(b)(vi)(D)(2)

A formula does not fail to be available on the same terms to all employees merely because the formula is not available to any HCE.

or

1.401(a)(4)-2(b)(vi)© A formula that is available soley to some or all NHCES is deemed to satisfy...

or 1.401(a)(4)-2(b)(v) The allocations provided to the HCEs is less than the allocation that would otherwise be provided

but yes, you would pass the ratio test because no HCE benefits.

sort of like testing an integrated plan (e.g. 5.7%) on an allocation basis and imputing disparity. yes, an integrated formula is safe harbor, but if you were to test everyoe would have the same allocation rate anyway.

[Belgarath]

Many thanks, Tom.