Average Benefits Test

[CLE401kGuy]

The plan permits entry at 1st of the month following 4 months of service.... The plan is cross tested...

When performing average benefits testing, is everyone regardless of service included in the average benefits test or only those who will be part of my nondiscrimination testing of the rate groups for the profit sharing? (i.e. those who are statutorily excluded will not be in my nondiscrimination test - therefore, should they not be in average benefits as well?) Any thoughts would be appreciated, Thanks.

[PensionPro]

Disaggregation applies to the ABT.

[Tom Poje]

there are 2 parts to the avg ben test.

avg ben pct test: everyone is included. this makes a difference in a 401k plan, because if you can defer you are inlcuded - regardless if you terminate with less than 500 hours.

rate group for profit sharing - it is optional to exclude terminees with less than 500 hours if they receive no nonelective. if you are a participant and are active you are includable whether you receive a contribution or not.

it is permissible to split the avg ben test in 2 parts - statutory includable, and otherwise excludable.

[CLE401kGuy]

Thanks for the responses, much appreciated

[chc93]

there are 2 parts to the avg ben test.

avg ben pct test: everyone is included. this makes a difference in a 401k plan, because if you can defer you are inlcuded - regardless if you terminate with less than 500 hours.

rate group for profit sharing - it is optional to exclude terminees with less than 500 hours if they receive no nonelective. if you are a participant and are active you are includable whether you receive a contribution or not.

it is permissible to split the avg ben test in 2 parts - statutory includable, and otherwise excludable.

Follow on question... ABPT includes everyone, RG for PS can exclude some. For the concentration percentage to get the SH, NSH, and mid-point percentages, are there 2 of them... one for the ABPT including everyone for the SH percentage for coverage, and another for RG for PS with some excluded for the mid-point for RG testing.

[Tom Poje]

If its a 3% SH, then that is a nonelective contribution, and the results would be the same as PS. All PS get lumped together (though no fair inmputing disparity on SH contributions)

Even with a SH Match as a general rule the NHCE concentration % is generally the same, it is not affected by the who receives a contribution but just the number of bodies in the count.

The only bodies that can be eliminated would be eligible ees who term < 500 and don't benefit (and even that is an option)

[chc93]

Tom, thank you very much for your reply. I understand everything you said. My question concerns coverage (ABPT) and rate-group testing.

PS has 1 year eligibility. 401k has immediate eligibility.

If the PS contribution fails ratio test for coverage, I move to ABPT for coverage. Here, I include all employees (since immediate eligibility) and all contributions/deferrals, and ABPT > 70%.

For the concentration percentage, do I include all employees that were in the ABPT, or only employees counted for the PS contribution, to get the SH, NSH, and mid-point percentages. Or is there a different concentration percentage for coverage using the ABPT, and for the PS contribution rate-group testing.

Thanks again...

[Tom Poje]

I'd say you don't really have a "concentraion %" for the avg ben pct test . (or at least that is my understanding of the rules)

1.410(b)-4 describes the classification test, and NHCE concentration %.

the avg ben pct test is 1.410(b)-5, so an entirely different section.

so under 1.401(a)(4) nondiscrim testing it refers back to passing by rate group

1.401(a)(4)-2whatever " satisfaction by section 410(b) by a rate group"

[chc93]

Tom, if coverage by ratio percentage fails, then have to do coverage by ABPT. And to satisfy coverage, in addition to ABPT >70% using all employees, the plan's ratio percentage must be greater than the safe-harbor percentage (derived from the concentration percentage). My question is if the concentration percentage for this includes all employees, or only those in the PS contribution coverage testing.

Similarly, for rate group testing using the mid-point, is the mid-point that is derived from the concentration percentage using all employees or only those in the PS conbribution coverage testing.

You may have answered this question saying that 1.410(b)-4 and 1.410(b)-5 are entirely different sections. If so, I think the concentration percentage is derived using only those employees in the PS contribution coverage testing for both ABPT coverage and rate-group testing. Agree?

[Tom Poje]

I use the concentration % for only those in the ratio % test

[chc93]

Thanks Tom. You cleared this up for me.

[Mike Preston]

Tom, how sure are you on this, because I thought the concentation percentage was like the HCE determination - it is an employer wide determination which then applies to all the subsequent tests.

[Tom Poje]

well, I could be wrong. been before, will be again.

my comments based only on what I was taught (or thought I was taught) and the explanation given

e.g. if I am looking at the nonelective portion of the test, and I have a 1 year wait for that portion, I would only consider those participant who are nonexcludable.

(I would actually never arrive at this situation if I had immediate eligibility for deferral, because I can't think of any plan I run that I don't test separately at that point)

[chc93]

Mike, what about this thought. A plan can have different ratio percentages for different contribution sources, eligibility requirements, etc. So using the average benefits test for coverage, which also requires the ratio percentage to meet or exceed the safe harbor percentage that is derived from the concentration percentage, wouldn't a plan have a different concentration percentage related to the specific ratio percentage being tested for coverage.