Control Group Coverage Test

[pixmax]

I have a control group of 10 companies, 1 plan that is excluding 9 companies and all Highly Compensated Employees.  Am I correct that at least 70% of NHCE's need to be eligible to pass 410b?

If company the total of all of companies NHCE's is 100 and only 7 are allowed to participate doesn't this fail?

 

[BG5150]

0% HCE and 7% NCHE is a pass, no?

[Mike Preston]

No. No. Somebody else will elaborate. 

[pixmax]

I agree, but in my mind it doesn't seem fair that they are not allowing the other groups of NHCE's to participate. 

[justanotheradmin]

Its okay that the other NCHEs aren't allowed into the plan. The question is of ratios, if ZERO HCE are allowed into the plan, then the coverage test will pass even if the plan only covers 1 NHCE. 

We have a plan that wanted a specific match for a specific NHCE. They did not want the match for any other employee. It passes coverage.

 

[Kevin C]

A plan that benefits no highly compensated employees for the plan year automatically satisfies the 410(b) requirements with respect to employees.  See 1.410(b)-2(b)(6).

[david rigby]

On 5/6/2019 at 12:17 PM, pixmax said:

I agree, but in my mind it doesn't seem fair that they are not allowing the other groups of NHCE's to participate. 

In simple terms, "non-discrimination" tests are how "fairness" is defined.  In most cases, this is a concept that compares HCEs relative to NHCEs.  It does not prohibit discrimination within either category.  (There are exceptions to the "comparison", such as the 415 limitation which is an example of absolute limits without comparing HCEs to NHCEs.)

[Luke Bailey]

pixmax, would it be fairer if none of the companies in the controlled group had a plan, so no NHCEs or HCEs covered? Our current system does not require employers to sponsor plans, and the result you are encountering is consistent with that basic premise.