Are employees of Excludable Class part of ACP test

[dmb]

Non-Safe Harbor 401(k) plan has (non-statutory) class exclusion for the employer.match.   They are not excluded from salary deferrals.  Must the employees of the excluded class be counted in ACP testing?  Thanks.

[Tom Poje]

generally no, unless I am missing something in your question. for example, if you had a last day rule or hours requirement for match those folks who fail do not show on the ACP even though they are included in the ADP test.

[ESOP Guy]

Agree with Tom and at risk of pointing out the obvious what stops you from taking too many people out of the match eligible group is the fact the match in this case has to pass the coverage test on its own.  The easiest form of that test is the ratio test.  Those people are factored into that test as includable but not benefiting as a general rule.  So if you excluded too money people you won't pass the 70% mark on the ratio test for the match. 

 

[Luke Bailey]

I agree with the conclusion that a class excluded from match by the plan doc would not be counted in ACP. This seems to be the clear result under Treas. reg. 1.401(m)-5, "Eligible Employee," paragraph 1. Not sure about last day of year requirement. Tom is probably right about that, but the language in Treas. reg. 1.401(m)-5, "Eligible Employee," paragraph 2, which seems to be the applicable rule, seems a little ambiguous on this point, mentioning only a minimum hours condition.