Coverage Testing

[Catch22PGM]

I'm looking for a little confirmation on what I hope are easy questions - with a lot of set-up.  A control group has 9 different 401(k) plans.  A few of the plans fail the ratio % test so we are going to aggregate the plans into 3 separate groups:

Group 1: Plans 1, 2, 3, and 4 are not safe harbor and all have identical provisions.

Group 2: Plans 5, 6, and 7 are not safe harbor and all have identical provisions (but different match than group 1).

Group 3: Plans 8 and 9 are safe harbor match with identical provisions except Plan 9 also has a fixed 2% non-elective contribution.

Groups 1 and 2 each pass the ratio % test for 401(k), 401(m), and 401(a) as well as ADP and ACP so we are in the clear. Group 3 passes the ratio % test for 401(k) and 401(m), but not 401(a). The only option for Group 3 is the average benefits test and it passes - if our system is running it properly. While I know the basics, I don't have a ton of experience dealing with the ABT and I'm always leery of results that I can't double-check with confidence. I know I should trust the software, but I trust the opinions of many of those who reply to this message board a little more.

In the average benefits test the HCE and NHCE in Group 3 are having the EAR's calculated while all HCE and NHCE from Groups 1 and 2 are shown with a 0.00 EAR. The average EAR for all HCE is .72%. The average EAR for all NHCE is .65% so definitely more than 70% of the HCE EAR. Non-discriminatory classification seems fine - excluded employees are only those employees from companies 1-7 and the ratio % test for 401(a) was 52%.

1. With this information does it sound like our system is running this properly and all three groups pass coverage - or is this not enough information to hazard a guess?

2. I think we've aggregated the most-logical way possible but am I missing any potential problems with aggregating these 9 plans into 3 separate groups?

3. Each of these plans uses different recordkeepers, have different investment lineups, and very different fee structures. Is this a potential BRF problem?

[CuseFan]

The average benefit percentage is calculated by considering ALL contributions to ALL plans within the CG, so the only people with zero rates anywhere should be those with zero deferral, zero match, and zero profit sharing/safe harbor/non-elective. Groups 1 & 2 are only zeroes for purposes of determining rate groups under the general test for nondiscrimination, which you should not need to do. If Plan 9 satisfies coverage and provides uniform percentage (design based safe harbor), you should be good, but you have one average benefit percentage for the entire control group that is based on all contributions.

Yes, be mindful of BRFs.

 

[Catch22PGM]

Thank you CuseFan. I thought the reason Groups 1 & 2 were showing up with zeroes in the ABT calculations had something to do with those plans not being safe harbor while the plans in the group we were testing (Group 3) are safe harbor. That made some sense in my mind with 1.401(k)-1(b)(4)(iii)(B). I have since found several sources that support what you've stated. This is why I come here when I'm not comfortable with what I'm seeing and why I recommend this board to everyone I know in the industry.