Average Benefits test inclusion for plan with separate eligibility req

[AndyH]

If a cross tested discretionary plan with a 1 year service requirement also has a K provision with immediate eligibility, does a terminee with 499 hours who deferred need to be included in the Average Benefits Test (if needed as part of a(4)). Said another way, who must be included, anyone satisfying the eligibilty requirements for any aggregated plan?

[Guest]

1. Regardless of 'eligibility' requirements, you can always statutory exclude people, thus perform two tests, those with a year of ervice and those less than a year of service. Because of a change in the regs, ALL HCEs are 'treated' as having a year of service regardless of how much time they actually have been there. Of corse if you teat the plan this way, you must also perform the ADP test as such, as well.

2. pretend you had no wait for the profit sharing, but still had 1000 hours to get a contribution. ee terms with 499 hours. you would still include him in the avg ben % test, but you would ignore him in the rate group test, wouldn't you? or put another way,

for 410(B) is ee includable or excludable?

for the 401(k) portion he is treated as includable, I can't think of a resaon to not include him in the avg ben % test as a result.

[AndyH]

Tom, thank you for the response, but I'm not completely following you. I've since looked into this a little more, and I think I have the answer, but would appreciate affirming or dissenting opinions.

I think the answer is that the a(4) test would be done using the eligibility requirements of the discretionary component, excluding employees that are both statutorily excludable and not benefitting. The average benefit percentage test (part of the a(4) test) would include all employees, nobody excludable, because that aggregated "plan" has no age or service requirements. This is because we have to use the lowest age/service conditions of any aggregated plan in the testing group. I don't think we can exclude or dissaggregate because the K "plan" does not contain the statutory exclusions. Maybe I'm wrong, but that's my current take on the rules. I know this is different from the ADP testing rules, because now NHCEs can be excluded from the ADP test entirely if they don't meet the statutory exclusions. Comments?

[Guest]

usually when I think of aggregated plans I think of controlled groups, where one company has 1 year wait, and another has 6 months wait. since I aggregate them I must use the lowest age/service requirements.

on the other hand, statutory exclusions allows me, at least how i interpret it, to 'pretend' a plan has a 1 year age 21 requirement. Everyone who is 'active', but could have been excluded is treated as statutory excludeable, and since only NHCEs in this group, that portion passes. (actually, the new regs simply said you can treat all highlys as haviving 1 year of service, but there is no requirement to do so)

in your 401 k example with immediate elig for 401k, before I do anything I 'pretend' the plan has a 1 year wait, and carve out my groups into two plans. Then I proceed with my nondiscrim testing on each 'plan' separately. Now, I have a terminee with 499 hours. regardless of how many years of service he had, he is in the avg ben % test because he could have deferred. If he has > 1 yr of service, he is not stat excluded, if he has

Assuming plan has last day provision, since he has less than 500 hours, he gets excluded from the a(4) tes regardless of which group he is in.

[AndyH]

Thank you Tom. Agree 100%.