ABPT Component Testin

[Buckoosier]

I have a plan where I may want to restructure into two components, each with 1 HCE participant, in order to pass nondiscrimination for the profit sharing allocation. Each component separately passes coverage. I would like to use cross testing in Component 1, and Component 2 passes with a uniform allocation (each participant gets a 5% allocation). If I use the average benefits test to pass Component 1, must I consider the match and deferral allocations of the participants in Component 2 when I compute the average benefit percentage ratio?

[John Feldt ERPA CPC QPA]

I'll make a general statement: you must consider all benefits of all the employer's "plans", and that includes each component of this plan, but you can ignore certain mandatorily disaggregated plans.

So this employer probably just has the one "plan", right, a 401(k) profit sharing plan with match? You run one average benefits percentage test for that entire plan. You can run that on a benefits basis or on a contributions basis. If your document does not require otherwise, you test using average compensation, current compensation, compensation from date of entry, using any definition of compensation which passes 414(s). You can test with imputed disparity, you can average some employees' benefit rates, you can use various mortality and rates from 7.5% to 8.5% differing for pre/post as an assumption, you can use nearest age, last age, you can try accrued-to-date testing and rate banding, plus many other options until you can't stand testing anymore.

You do not run an average benefits percentage test for component #1 and then another for component #2. Component testing does not in and of itself change the result of the average benefits percentage test (but your assumptions and methods certainly can and do).

If component #1 tests the nonelective contribution as a benefit payable at the testing age (cross-tests), and if the HCEs rate groups do not each pass with a 70% pass rate, then your average benefits percentage test for the plan must be at least 70%. And yes, the average benefits percentage test must include the other "plans". Those "plans" include the deferral "plan" and matching "plan" within the overall "plan".

I hope this helps?

[Buckoosier]

Yes it does, thank you.