Combo plan - 401a4 testing - component testing related

Hi --

Census:

HCE1 & HCE2

NHCE1, NHCE2 & NHCE3

CB plan covers HCE1 and NHCE1

401k/PS covers all

In general, I managed to pass annual but due client's request for the HCE2, things got complicated.

410b is not an issue, passing both ratio and ABPT.

Is there a way to test HCE1, NHCE1 & NHCE2 under annual method and HCE2 and NHCE3 under component rule?

The reason I am asking is because neither HCE2 nor NHCE3 are covered under the CB plan.

Thank you

I'm not exactly sure what you're trying to ask with respect to "annual method" and "component rule."

But a component plan has to pass coverage on its own. A component plan which covers 50% of the HCEs and 33.33% of the NHCEs will have a ratio percentage of 66.67% and will fail coverage.

36 minutes ago, C. B. Zeller said:

I'm not exactly sure what you're trying to ask with respect to "annual method" and "component rule."

But a component plan has to pass coverage on its own. A component plan which covers 50% of the HCEs and 33.33% of the NHCEs will have a ratio percentage of 66.67% and will fail coverage.

But op says plans pass abpt. 

23 minutes ago, Mike Preston said:

But op says plans pass abpt. 

Unless the employees are assigned to components based on a reasonable classification, the ABT wouldn't be available for the component plans to satisfy coverage.

Reasonable classification

3 hours ago, C. B. Zeller said:

Unless the employees are assigned to components based on a reasonable classification, the ABT wouldn't be available for the component plans to satisfy coverage.

True. I should have mentioned that. With a group that small and two hces it is highly likely in my opinion that one can find a reasonable classification to work with. The devil is in the details of course.

13 hours ago, Mike Preston said:

True. I should have mentioned that. With a group that small and two hces it is highly likely in my opinion that one can find a reasonable classification to work with. The devil is in the details of course.

Interesting - my feeling would be that almost any classification you could come up with for a group this small would have the effect of classifying employees by name, and therefore not be reasonable. If you said that employees are in component 1 if their desk faces the street, and component 2 if their desk faces the parking lot, maybe you could argue that is a classification by work location, but seems like a stretch to me.

CB plan excludes them categorically.

PS plan provision is everyone in their own group. Not an issue as the sponsor is a corporation.

Now technically no one is included/excluded by name, at least in my opinion but I may be wrong.

6 hours ago, Jakyasar said:

CB plan excludes them categorically.

PS plan provision is everyone in their own group. Not an issue as the sponsor is .

Now technically no one is included/excluded by name, at least in my opinion but I may be wrong.

A swing and a miss....... none of this is relevant to the issue being discussed. That issue is restructuring to satisfy 401(a)(4), while satisfying 410(b) on each restructured component. If you want your HCE2 and NHCE3 to be tested separately then you have to ensure it satisfies 410(b) [coverage]. One HCE out of two and one nhce out of three results in a coverage percentage of 1/3 / 1/2 which is less than 70% so you have to utilize the ABT to allow a perentage lower than 70% to satisfy 410(b).  But the a4 regs say you can't use ABT on a restructured group unless that group is a reasonable business classification.  There are no explicit rules on what constitutes a reasonable business classification.  I think it is fair to say that the IRS will, given the chance, define it more narrowly than I would like.  So, caution is advised as per Corey's comment.

To both, much appreciated.

Decided not to use it anyway.