401a4 non-discrim testing - 5% safety value for HCEs

[Lorraine Dorsa]

I'd like to use the 5% safety valve which permits the plan to satisfy 401a4 amts testing if up to 5% of the HCEs are treated as non-benefiting.

The regs state that this is available "if the Secretary determines" certain conditions to be met.

Does this mean that I actually have to apply for a ruling to use this method? If so, does anyone have any experience with how to do this, what type of documentation is needed, etc?

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[Guest]

I don't think a ruling is necessary or even available.I've always considered the items given in 1.401(a)(4)-3©(3) to be more as "points to ponder" rather requirements to be met.They're a way of saying you don't necessarily have carte blanche to eliminate 5% of the HCE's from the test.

To me the the most important thing is that you can't eliminate 5% of HCE's and then tinker wth the test. Once you take out the 5%you either pass or you go back to square one.

[Lorraine Dorsa]

The language in 1.404a4 re the 5% safety valve is very different from the language in 1.401b re facts and circumstances in the average benefits test so I'm hesitant to assume they both mean the same thing--that you can apply the facts and circumstances and make your own decision (subject to override by the IRS if they disagree).

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