410b Coverage Test

[Chippy]

New Comp Profit Sharing Plan, contribution elig. is 1000 hours and employed on plan year end.

Plan has 2 HCE's and 2 NHCEs. 1 NHCE terminated and is not benefiting. Plan is failing Ratio Percentage test at 50%

Document is marked fail-safe provisions do NOT apply.

Plan is passing Rate Group test at midpoint and the average benefits % test is passing.

Are there any other tests I must run to pass coverage?

[Tom Poje]

the long winded answer

for purposes of coverage, the fact the plan is a new comp plan has nothing to do with the question.

as you indicated you have NHCE benefiting 1 / 2 = 50%

HCE benefiting 2 / 2 = 100%

so ratio% is 50% and as you said, since this is less than 70% this fails ratio %

the plan does not contain failsafe language, so you are able to proceed to the other option to pass coverage.

part 1 avg ben % test - you indicated it passes

part 2 - nondiscrim classification test

1.410(b)-4(b) Reasonable classification - based on all facts and circumstances of those who benefit under the plan...

an enumeration by name (or other criteria having the same effect) is not considered reasonable.

If (this was not indicated) the plan has each person in their own group then that could be considered the same as enumeration by name. however, the regs do indicate it based on all facts - and in this case, the reason the person didn't benefit was due to last day requirement not because of the groups., so probably are ok. (e.g. if the people weren't in individual groups you would have had the same results)

1.410)b)-4©(2) safe harbor - only if the plan's ratio % is greater than or equal to the employer's safe harbor %.

The plan's safe harbor % (based on the NHCE concentration % is 50%, so since the ratio% is equal to that it would appear you are ok.

[Chippy]

Thanks Tom.