If a 401(k) plan with a cross-tested profit sharing allocation exclude

[Richard Anderson]

If a 401(k) plan with a cross tested profit sharing allocation excludes participants with less than a year of service from the ADP test, must they also be excluded from the 401(a)(4) cross testing. Most of the participants with less than a year of service are young and are not deferring. They hurt the ADP test, but we need them for the cross testing. May they be excluded from the ADP test and not excluded from 401(a)(4) testing.

[This message has been edited by Richard Anderson (edited 02-18-2000).]

[AndyH]

Ther group includable in the ADP test is not the same as the a(4) test. In the ADP/ACP, you're testing the K&M. In the a(4) test, you're testing the discretionary. Therefore, you use the eligiblity for the discretionary, and the statutory exclusions for than group, e.g. T <501 hours. If the a(4) test must go to average benefits because one rate group is less than 70%, the K people must be brought in using that eligibility criteria. You can, however try permissively disaggregating based upon the maximum age/service if this helps, which often does not.

[Guest]

If I understand the question:

Plan is using statutory exclusions for purposes of the ADP test.

Therefore, the plan must use statutory exclusions for the 410(B) tests.

Pretend for a minute the plan is not cross tested.

under 410(B) you need to test for coversge

401(k), 401(m) and 401(a)(4)

the ratio percentage for each of these must be passed. you have chosen to use statutory exclusions. therefore you must pass ratio

for 401(K) > 1 yr svc

401(k)

401(M) > 1 yr svc

401(m)

401(a) > 1 yr svc

401(a)

yes, the 5500 needs to be filled out 6 times for that question.

now, in addition to passing coverage, the plan must also pass discrimination testing.

401(k) is the ADP test

401(m) is the ACp test

you indicated the plan passes these.

(I will assume there are no HCEs in the group of ees with

normally, there is no 401(a) test, as a plan is considered 'safe harbor'. (even if integrated up to 5.7%)

however, if the plan is cross tested, then idscrimination testing must be done.

cross testing is the 'equivalent', if you will, of the ADP test. you must be consistent. you cannot bring back into testing those ees you statutory excluded,