Eligibility for two plan General testing

[drakecohen]

There is a cash balance/PS-401k combination being tested for nondiscrimination.

Cash balance has statutory 21 & 1 eligibility but PS/401K has a 3 month wait.

Do all participants need to be included in the General test or only those meeting the 21 & 1 eligibility requirements?

Would it matter if only the 401k part had a 3 month wait and it was 21 & 1 for the PS portion of the DC plan?

[Tom Poje]

any plans I have seen that are set up this way test 'otherwise excludable employees separately' so the issue becomes a moot point

[Below Ground]

In what I believe "expands upon" on Mr. Poje's concise response, in this situation you would typically apply the "otherwise excludable employee rules". This would in effect remove the "short term participants" created by the 401(k) Plans liberal entry provisions.

As I understand the aggregation rules in this situation, you must first start out with the covered workforce created by the lowest age/service standard under the 2 plans (Tres. Reg 1.410(b)-6(b)(2). This defines your total testing population. You can then reduce that population by employing the Otherwise Excudable Employee (OEE) classification to reduce the size of this population. The mechanics of this tool are found in Treas. Reg. 1.410(b)-7©(3).

An important consideration is how does one handle any HCE who is classified as an OEE. If the testing was ADP or ACP Testing we could include them in the population that is NOT excluded by this rule. If not, they must be tested with the other OEEs, as if that group represents a separate plan. This option does NOT exist for other forms of testing; meaning, the OEE must be tested as a separate plan if using this tool for those tests. This condition is well explained in Q 6:37 of the Coverage and Nondiscrimination Answer Book, which is in part authored by Mr. Poje.

If you do have HCE in the OEE it is very likely that you will have a testing problem; if those HCE are receiving a material benefit. Of course, the types of plans and benefits provided will determine if the "OEE Tool" should be used.

Finally, if the Profit Sharing Plan does not have the same liberal entry terms as the Elective Deferrals (Matching too?), that has a potential material impact on testing results. Mandatory disaggregation as applies to coverage/nondiscrimination testing would have the 401(k) and 401(m) parts are tested separately.

Caution: When performing Cross-Testing on the Plan as a whole for a rate group that fails the ratio percentage test, this disaggregation does not apply.

Hopefully, the provided detail proves helpful.