Are deferrals in the (k) portion of a plan included in non-discriminat

[Guest LMalone]

I was just asked by a TPA if, when doing the non-discrimination test for a cross-tested allocation for the year, are salary deferrals in the (k) portion of this plan included in the test?

The TPA said that when only looking at the PSP portion (Employer contributions allocated on a cross-tested basis) the average benefits test passed. But the computer added deferrals from the (k) portion and the test failed.

This TPA said that the computer grabbed any amount that was considered an annual addition and counted it in the cross testing.

I certainly thought the (k) portion and the PSP portion were totally separate, but if I'm wrong, I need educating fast.

This is such a strange concept for me that I'm not even sure I'm wording my question clearly.

Thanks for any responses.

[AndyH]

The computer is right. Deferral, match, ESOP allocations, etc. all get added in for purposes of the average benefits component of the test, but remember that this is needed only if one of the rate groups falls below 70%.

[Guest]

There are two parts to the Average Benefits Test.

1. Average Benefits Percentage Test

All contributions and forfeitures are included

2. Nondiscrimination classification test

This is the 401(a) test, the equivalent (for lack of better term) to the 401(k) (ADP) and the 401(m) (ACP) tests.

or expressed another way you have:

401(k) - commonly called ADP test

includes Deferrals, possibly QNECs and QMACs

401(m) - commonly called ACP test

includes Matches and post tax contributions, possibly QNECs and QMACs not used in the ADP test. If the ADP test passes, deferrals can be 'shifted' to the ACP test.

401(a)(4) - I guess you would refer to this as the 'cross tested results' - includes profit sharing and forfeitures, safe harbor non elective contributions as well (but no fair imputing disparity on these) If matches were used to satisfy top heavy, then they would not be included in the ACP test, but end up here.

In other words, in answer to your question, YES and NO deferrals are included in the average benefits test. it depends on which portion of the test you are talking about, and you have to pass both portions.

I can not tell from your comments which test the TPA referred to.

[Erik Read]

Just a thought - I know when working with software programs you had to be very specific as to the type of contribution and which field you entered which $ amount into for cross testing plans. Some have a simple screen that show's total contribution - if you include all source's it assumes that is the "contribution" and does not consider each source. We had to input the specific $'s in a detail level field to get the response we were looking for on cross-testing.

Maybe that will help.