Coverage

[Guest elang]

I’ve asked this question generically before, but was hoping I could lay out an example and get confirmation that this is correct:

Plan has:

Eligible HCEs: 10

Eligible NHCEs: 94

All 10 HCE’s are receiving a PS contribution

Only 46 of the 94 are receiving a PS contribution (approx 49%).

Plan fails the Ratio % Test for Coverage.

That said, when I 410(b) test, ABT is 81%; and all rate groups under 401(a)(4) are above midpoint of 23.5. Plan now passes coverage testing. Is this correct?

[Tom Poje]

where is Spock when I need him.

1. if your plan has fail safe language, then do not pass go do not collect $200. you never get to the avg ben test because fail safe language forces you to use the ratio % test.

2. if plan does not have fail safe language, then

NHCE concentration % => 94/104 = 90.38%

since regs use language something like 'at least' you always round down, so round down to 90%.

the safe harbor % for 90% is 27.50.

NHCE ratio % = 46/94 = 48.9%

HCE ratio % = 100%

so PLAN ratio percentage = 48.9%

for coverage, there is no 'all rate group'. there is only the plans ratio %.

for coverage there is no 'mid point'. there is only a safe harbor. midpoint is a term only used for nondiscrimination testing.

well, there is an unsafe harbor, but you have to have permission from mom to use that, and pass facts and circumstances.

sonce 48.9% > 27.5% AND Average Benefits % >70% then plan passes coverage.

as a cautionary note, IRS has voiced an opinion that if each person is in their own rate group, that "could" be viewed as saying groups are defined by name. any classification by name or other criteria having substantially the same effect as enumeration by name fails the "reasonable" classification test and negates the ability to use the avg ben test. see 1.410(b)-4(b)

[Guest elang]

I understand perfectly. You'r better than Spock. Thanks

[Mike Preston]

Tom, the IRS' warnings are only applicable if one or more of the individual groups gets an allocation percentage of zero.

[Tom Poje]

Mike - I assumed that only because the number of NHCEs not benefiting was over 50%. I suppose it's possible many failed hours/last day (or are excluded from the plan), but it just sounded like many were in a group allocated 0. My bad. (Just like the Wolverines the other day)

[Mike Preston]

True, but it could just as easily be the result of a class exclusion. There is nothing wrong with having a class exclusion combined with individual allocation groups for those that aren't excluded. But I know you know this, I was just pointing it out so that the thread covered the issue.