Allocation vs Accural For ABT & General Test

[justatester]

Hi,

We have a plan that does not pass the ratio test for match & prrofit sharing so need to go to average benefits testing. Also needs general testing since profit sharing is a service based allocation.

Can the average benefits portion be run on an accural basis to use lower thresholds? Then run the General Test on an allocation basis. Then General can't be run on an accural basis since it does not pass gateway.

[Tom Poje]

Not quite sure if this is what you are asking:

Vaguelly recall at one of the ASPPA conferences the answer was as follows:

1.The gateway rules are found under the nondiscrim rules of 1.401(a)(4)

2. there is no gateway rule under 410(b) so you are allowed to test whatever it takes to pass without worrying about the gateway.

I would add the following

3. while your testing group has to be the same (e.g. all ees or stautory include/otherwise excludable) your testing methods can be differnt than what you used for coverage. (e.g. you could even component testing - some people on an allovction basis and the remainder on an accrual basis for non discrim testing which would certainly be different than what you used for coverage)

oh here it is Q 44 2009 ASPPA conference

Based on the facts below, does the profit sharing allocation have to

meet the gateway requirements of the final comparability

regulations? A profit sharing contribution is allocated to a select

group of employees using an integrated points allocation formula

that requires a general nondiscrimination test under IRC §401(a)(4).

The rates used in the rate group test were calculated using

contribution rates, and the ratio percentages of all rate groups met

the nondiscriminatory classification percentage.

The average benefit percentage test did not pass using contribution

rates, but did pass when tested using equivalent benefit accrual

rates.

Do the gateway requirements apply to this allocation because the

average benefit percentage test was done based on equivalent

benefit accrual rates?

Answer

No. There is no gateway requirement for a general tested plan under Treas. Reg.

§1.410(b)-5(d)(5), unless cross-testing is used to determine the rate group testing.

The gateway rules are in §1.401(a)(4)-8(b)(1)(I).

[Mike Preston]

Please learn to spell accrual.

Yes, you can run the ABT on ATD to use the lower thresholds for both 410(b) and rate group testing under 401(a)(4) (they are slightly different lower thresholds, but they are definitively lower in both cases).

The gateway is always tested on a contributions basis -- you can't pass gateway using the ATD methold.

As Tom points out, just because you need to general test doesn't mean you have a gateway requirement. If you pass your general test on a contributions basis there is no gateway requirement. It is only if you need to use equivalent benefits testing on one or more rate groups do you trigger the gateway requirement.

So, if the plan passes the ABT and satisfies 410(b) on the lower threshold for each type of contribution (match, employer, 401(k)); and,

if the general test, when run on a contributions basis, satisfies 401(a)(4); then,

you are done because there is no need to consider gateway.

This is true whether the ABT is run on a contributions or benefits basis.