Average Benefits Percentage Test

[Guest guest809]

Our parent company recently purchased another company. We're testing things to see how we'll pan out with the coverage test. Some of our plans now fail the ratio test (using the entire controlled group) so we're moving to the ABT.

As part of the ABPT on a stand-alone basis (no permissive aggregation yet), we need help with determining the denominator for each plan.

Plan A

NHCE avg benefit rate: 9%

HCE avg benefit rate: 10%

(1000 NHCEs and 200 HCEs)

Plan B

NHCE avg benefit rate: 4%

HCE avg benefit rate: 4.5%

(300 NHCEs and 50 HCEs)

Aggregate

NHCE avg benefit rate: 7.85%

HCE avg benefit rate: 7.25%

Do the results for Plan B come out as 88.9% (ie 4/4.5) or as 55.2% (4/7.25)?

Thanks.

[Guest guest809]

And would the NHCE concentration for Plan B be 85% (300/350) or 19% (300/1550)?

[Tom Poje]

If you have 2 plans in a controlled group, but wish to test separately you have the following

1000 NHCE (A) + 300 NHCE(B) = 1300 total NHCE

200 HCE (A) + 50 HCE (B) = 250 HCE

when looking at plan A treat all B people as includable not benefiting

so

1000 / 1300 =76.9% ratio for NHCE

200 / 250 = 80% for HCE

Plan A ratio = 76.9 / 80 = 96.12% passes

Plan B

300 / 1300 = 23.08% NHCE

50 / 250 = 20% HCE

23.08 / 20 = 115.4% so passes ratio% as well.

or at least based on data provided

unless some of those bodies are also not benefiting. e.g. you said you have 1000 NHCEs, but maybe some aren't benefiting (but of course that depends on which test of coverage you are talking about. if its the 401k, then assuming all 1000 could defer then its 1000/1300. for the nonelective portion if there is a last day rule or hours requirement then its (less than 1000) /1300...etc.

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for purposes of average benefit pct test, all contributions are included, whether the individual plans are aggregated or not.

your NHCE concentration %: in a controlled group you really only have 1 employer, doesn't matter whether plans are aggregated.

so, what % of the population is NHCE and go from there.

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