1
Q
How does a db plan satisfy the minimum participation test?
A
If the plan benefits the lesser of 50 employees or 40 percent of all employees of the employer. “Benefits” means that they receive a meaningful benefit.
If only 2 employees then must cover both.
Additionally, any prior benefit structure -all accrued benefits as of the beginning of the plan year- must also satisfy the minimum participation test.
2
Q
What level of benefit does the IRS consider meaningful for 401(a)(26)?
A
The IRS has taken the position that a DB accrual must be at least 0.50% of pay in order to be considered to be benefiting for purposes of IRC Sec 401(a)(26).
3
Q
Which plans automatically satisfy IRC Sec 401(a)(26)?
A
- Plans covering only NHCEs that are not top-heavy and do not aggregate under other rules;
- Multiemployer plans;
- Certain underfunded defined benefit plans;
- Frozen defined benefit plans; unless subject to the prior benefit structure test mentioned above; and
- Plans in m/a transition period.
4
Q
Which plans automatically satisfy IRC Sec 401(a)(26)?
A
- Plans covering only NHCEs that are not top-heavy and do not aggregate under other rules;
- Multiemployer plans;
- Certain underfunded defined benefit plans;
- Frozen defined benefit plans; unless subject to the prior benefit structure test mentioned above; and
- Plans of a controlled group of employers that are acquired (or disposed of) during the transition period; provided the test was met before the acquisition (disposition) and there was no other significant change in coverage.
5
Q
What types of disaggregation may be required for plans for 401(a)(26)?
A
Some disaggregation is required including:
- Former employees must be tested separately if they benefit under the plan (for example through cost of living adjustments to the benefit amount).
- Each employer in a multiple employer plan must be tested separately.
6
Q
What disaggregation can be performed at the option of the plan sponsor for 401(a)(26)?
A
- May elect to test otherwise excludable employees separately.
- May elect to test QSLOBs separately. For purposes of IRC Sec 401(a)(26); portions of the plan may be treated as QSLOBs without meeting the 50 employee requirement otherwise imposed for determining QSLOB status.
- Union employees may be tested separately.
7
Q
What are the three optional testing periods for satisfying the minimum coverage rules?
A
- Daily testing * Quarterly testing * Annual testing
8
Q
What type of plans must test coverage annually?
A
A plan with 401(k) contributions; an employer matching contribution or after-tax employee contributions must test on an annual basis. Generally the test is run on the last day of the plan year taking into consideration all individuals employed at any time during the plan year.
9
Q
What allowances are there if the defined benefit plans data has not changed significantly from one year to the next?
A
Substantiation guidelines allow for defined benefit plans to use data from the prior plan year; provided that the data has not changed significantly from one year to the next.
There is also a three year testing cycle option which states that a plan may rely on a coverage test performed for a particular plan year for up to two succeeding plan years; provided the employer reasonably concludes that there has been no significant change during those years that would affect the coverage test results.
10
Q
Which plans automatically satisfy IRC Sec 410(b)?
A
- Plans that benefit only NHCEs;
- Plans sponsored by companies that have no NHCEs who have satisfied statutory eligibility requirements;
- Plans that only have union employees who benefit; and
- Plans of a controlled group of employers that are acquired (or disposed of) are excluded from the coverage test during the transition period provided coverage was met before the acquisition (disposition); provided there was no other significant change in coverage. Separate lines of business (SLOBs) may apply for an exception to minimum coverage rules.
11
Q
Which excludable employees are omitted from the coverage testing group?
A
- Employees who do not meet the age and service requirements of the plan being tested;
- Terminated employees may be omitted if they worked less than 501 hours in the plan year and did not receive a benefit for the plan year solely because they worked less than the number of hours required to receive a benefit or because they were not employees on the last day of the plan year;
- Union employees whose retirement benefits were the subject of good faith bargaining; and
- Nonresident aliens with no earned income from the U.S.
12
Q
How are excludable employees determined?
A
Separately for each plan of the employer unless permissive aggregation is being used; in which case the least restrictive provisions will determine who is excludable. The employee must be an excludable employee for the entire testing period to be considered excludable.
13
Q
How are nonexcludable employees determined?
A
All employees who do not meet the criteria of an excludable employee are considered to be nonexcludable employees. An employee who waives participation in the plan (even if the waiver is irrevocable) is not an excludable employee for coverage testing. Also; an employee who is excluded due to job classification (e.g.; hourly; salaried) is not an excludable employee for coverage testing.
14
Q
Who are otherwise excludable employees?
A
Employees who are eligible to participate in the plan but would have been excludable employees if the employer had adopted the minimum statutory eligibility requirements of IRC Sec 410(a) of age 21 and one year of service.
If desired, otherwise excludable employees may be tested separately to improve testing results.
15
Q
For 410(b), when does an employee benefit under a defined contribution plan?
A
- If the employee receives an allocation of a contribution or forfeiture for the plan year;
- If the employee is entitled to an allocation but is limited by IRC Sec 415;
- If the employee fails to receive an allocation because of a uniformly applied benefit limit under the plan; or
- If a non-key employee receives a top-heavy allocation even if that employee would not otherwise be eligible to share in the allocation; however; if the plan passes coverage considering this employee to be nonbenefiting then it is assured of meeting the uniform allocation safe-harbor for IRC Sec 401(a)(4).
An employee benefits in a 401(k) or 401(m) arrangement if the employee is eligible to make a deferral or receive a matching contribution regardless of whether the employee makes a deferral or if the employee terminated employment.
16
Q
For purposes of 410(b), when does an employee benefits under a defined benefit plan?
A
- If an employees accrued benefit increases in a plan year;
- If the employee is entitled to an accrual but is limited by IRC Sec 415;
- If the employee fails to receive an accrual because of a uniformly applied benefit limit under the plan or due to a prior accrual resulting from a fresh start adjustment or due to a post retirement accrual adjustment;
- If a non-key employee receives a top-heavy accrual even if the employee would not otherwise be eligible to receive an accrual;
- If surplus assets are allocated to participants as a result of plan termination (resulting in increased benefits); or
- If an employees benefit is reduced under a floor-offset arrangement even though there is no increase in the accrued benefit. An employee benefits in an IRC Sec 412(e)(3) plan (fully insured defined benefit plan) only if the premium is paid.
17
Q
Which certain plans or potions of a plan must be tested separately for purposes of coverage testing under IRC Sec 410(b)?
A
- 401(k); 401(m); and IRC Sec 401(a) components of a plan must be treated as separate plans when testing coverage under IRC Sec 410(b).
- An ESOP portion of a plan is treated as a separate plan for testing coverage.
- Collectively bargained employees and noncollectively bargained employees in the same plan must be tested separately.
- Each employer that participates in a multiple employer plan must test for coverage separately.
18
Q
Which certain groups may be tested separately for coverage under IRC Sec 410(b) at the employers election?
A
- Otherwise excludable employees may be tested separately from nonexcludable employees.
- QSLOBs allow benefiting employees of different QSLOBs to be tested separately.
19
Q
What is the average benefit test in relation to IRC Sec 410(b) and what are its two parts?
A
An alternative test that may be used to satisfy coverage testing under IRC Sec 410(b) if a plan fails to pass coverage testing using the ratio percentage test; assuming the plan does not contain fail-safe language.
1) Nondiscriminatory classification test; and
2) Average benefit percentage test (also called average benefit ratio test).
Both parts must be passed to satisfy IRC Sec 410(b) using the average benefits test.
20
Q
What are the two criteria necessary to pass the nondiscriminatory classification test of the average benefit test; which relates to IRC Sec 410(b)?
A
- The allocation groups must be a reasonable classification that is based on all facts and circumstances and must be established using objective business criteria that clearly identifies the category of employees who benefit. Classifying by job category; geographic location or compensation category (e.g.; hourly versus salary) is reasonable; classification by a persons specific name is not reasonable.
- Must be a nondiscriminatory classification based on either a safe harbor percentage test or a facts and circumstances test.
21
Q
When is the safe harbor percentage test satisfied?
A
If the plans ratio percentage is equal to or greater than the employers safe harbor percentage.
22
Q
What are the upper and lower percentages of the coverage ratio in the safe harbor percentage test?
A
The highest safe harbor percentage is 50%; and the lowest unsafe harbor is 20%.
23
Q
What is the safe harbor and non-safe harbor percentage when the NHCE concentration of 0 to 60%?
A
- Safe harbor percentage of 50 percent
- Unsafe harbor is 40 percent
- If the percentage of NHCEs who benefit is between 50 percent and 40 percent of the percentage of HCEs who benefit; the plan will be subject to a facts and circumstances test.
24
Q
What is the safe harbor and non-safe harbor percentage when the NHCE concentration over 60%?
A
- Both the safe and unsafe harbor percentages are reduced as the NHCEs concentration percentage increases above 60 percent.
- The unsafe harbor percentage is generally 10 percent less than the Safe Harbor; but never less than 20 percent.
- For every 1 percent increase in the concentration percentage; the 50 percent and 40 percent safe harbor percentage levels decrease by 0.75percent.
25
When is the facts and circumstances test satisfied as relating to the safe harbor test?
* The plans ratio percentage is greater than or equal to the unsafe harbor percentage (see Safe Harbor and Unsafe Harbor Percentages Table); and
* The IRS deems the classification to be nondiscriminatory based on various criteria including but not limited to: the underlying business reason for the classification; the representative number of employees in each salary range benefiting; the difference between the plans ratio percentage and the safe harbor percentage. The midpoint is normally used in the general test and is calculated as the average of the safe harbor percentage and the unsafe harbor percentage.
26
How is the average benefit provided to NHCEs under all plans of the employer expressed?
As a percentage of compensation (average benefit percentage) must be greater than or equal to 70 percent of the average benefit provided to HCEs.
The actual benefit percentage of a group of employees for a testing period is the average of the employee benefit percentages; calculated separately with respect to each of the individual employees in the group; for the testing period.
All nonexcludable employees of the employer are taken into account for this purpose; even if they are not benefiting under any plan that is taken into account.
27
How may employee benefit percentages be calculated?
On a benefits basis (usually for defined benefit plans) or on a contributions basis (usually for defined contribution plans). Alternatively; a defined benefit plan could be tested on a contributions basis; and a defined contribution plan on the basis of benefits (cross-testing).
28
For the ABPT, what happens when an employee benefits under more than one plan of the employer or controlled group?
Employee benefit percentages may be determined as the sum of the employee benefit percentages for each of the plans in the testing group that are aggregated.
29
What inconsistencies are permitted if an employee benefits under more than one plan of the employer or controlled group; if it does not significantly increase the average benefit percentage?
* IRC Sec 414(s) compensation;
* Average annual compensation;
* Testing age;
* Fresh start dates;
* Actuarial assumptions for normalization; and
* Underlying definition of actuarial equivalence.
30
What are the three different components tested for nondiscrimination under IRC Sec 401(a)(4)?
* Contributions or benefits must be nondiscriminatory in amount.
* Benefits; rights; and features must be provided in a nondiscriminatory manner.
* The effect and timing of plan amendments and terminations must be nondiscriminatory.
31
How can a plan demonstrate nondiscrimination in amount of contribution or benefits?
By adopting a safe harbor plan. All other plans must prove nondiscrimination by satisfying the general test (also known as the rate group test).
32
What are key features of a safe harbor plan under IRC Sec 401(a)(4)?
* Can be design-based or nondesign-based;
* Require little to no annual testing; and
* Allow less flexibility in plan design.
33
What are the two safe harbors for defined contribution plans ps allocation?
* Uniform allocation formula
| * Uniform points allocation formula
34
How are excludable employees determined?
Separately for each plan of the employer unless permissive aggregation is being used; in which case the least restrictive provisions will determine who is excludable. The employee must be an excludable employee for the entire testing period to be considered excludable.
35
How are nonexcludable employees determined?
All employees who do not meet the criteria of an excludable employee are considered to be nonexcludable employees. An employee who waives participation in the plan (even if the waiver is irrevocable) is not an excludable employee for coverage testing. Also; an employee who is excluded due to job classification (e.g.; hourly; salaried) is not an excludable employee for coverage testing.
36
Who are otherwise excludable employees?
Employees who are eligible to participate in the plan but would have been excludable employees if the employer had adopted the minimum statutory eligibility requirements of IRC Sec 410(a) of age 21 and one year of service.
If desired; otherwise excludable employees may be tested separately to improve testing results.
37
Describe the uniform allocation formula as part of the safe harbors for defined contribution plans.
* Design-based.
* Each covered employee is treated uniformly and given either a percentage of plan year compensation or a flat dollar amount for each uniform unit of service during the plan year.
* May use permitted disparity in accordance with IRC Sec 401(l).
38
Describe the uniform points allocation formula as part of the safe harbors for defined contribution plans.
* Nondesign-based.
* Requires annual testing of the average allocation rates. If the HCE average does not exceed the NHCE average then the testing is passed. If not then nondiscrimination must be demonstrated using rate groups under IRC Sec 401(a)(4).
* Must grant points for units of compensation and for at least age or service.
* Average HCE allocation rates must not exceed average NHCE allocation rates.
* Forfeitures must be allocated in the same manner as the contribution.
39
What are the four safe harbor plan designs for db plans?
* Unit Benefit * Fractional Accrual Rule * Flat Benefit * Alternate Flat Benefit
All safe harbor defined benefit plans require uniformity.
40
What type of testing is required if plans do not satisfy the safe harbor allocation/accrual rules?
The general test with respect to the amount of contributions or benefits. The test is result-based (i.e.; the basis for underlying contributions/benefits is not relevant). Annual testing is required; and it focuses on individual allocations and accrual rates. General testing allows greater flexibility in plan design.
41
How are allocation rates expressed and what are allowable measurement periods in the testing requirements for plans that do not satisfy the safe harbor rules?
Allocation rate can be expressed as a dollar amount or as a percentage of compensation determined by dividing the amount of the allocation by the employees plan year compensation.
Allowable measurement periods:
* Current plan year (annual) where allocation rate is equal to current year allocation divided by current year compensation.
* Current plan year and all prior years (accrued to date) where allocation rate is equal to allocation during measurement period divided by average annual compensation times years of service during measurement period.
42
What is Normal Accrual Rate (NAR) for a general test based on accural rates?
* Is the increase in the employees benefit during the measurement period divided by the employees testing service during the selected measurement period multiplied by average annual compensation.
* To normalize is to convert actuarially into a life only benefit at the testing age using reasonable assumptions. Standard assumptions are deemed to be reasonable.
* Can impute permitted disparity but this is not available if another plan has already fully utilized the 35 year cumulative rule.
* Can exclude the portion of benefit earned prior to a fresh start date.
43
What is Most Valuable Accrual Rate (MVAR) for a general test based on accural rates?
* Is the increase in the employees most valuable optional form of payment of the accrued benefit during the measurement period divided by the employees testing service in that measurement period multiplied by average annual compensation.
* Most valuable optional form of payment is determined by calculating each QJSA benefit payable for each year from testing date to testing age; normalizing each of these QJSAs and dividing each benefit option by the appropriate testing service (affected by measurement period selected) to that point.
* Permitted disparity and fresh starts; etc.; are available as with NAR.
44
What are the measurement periods for a general test based on accural rates?
* Current plan year (annual);
* Current plan year and all prior years (accrued to date); or
* Current plan year and all prior and future years projected (defined benefit plans only).
45
How are rate groups determined?
A rate group must be determined for each HCE benefiting under the plan. A rate group consists of the HCE and all other employees (HCEs and NHCEs) who have an allocation rate (defined contribution plans) or a normal accrual rate (NAR) and most valuable accrual rate (MVAR) (defined benefit plans) equal to or greater than the cornerstone HCE rate.
Each rate group must satisfy IRC Sec 410(b) by either of two tests. (Note that the rate groups do not have to employ the same test.)
* Ratio percentage test; or
* Average benefit test
46
What is the minimum gateway allocation for benefiting NHCEs?
* One-third of the allocation rate of the HCE with the highest allocation rate (allocation rate determined with respect to IRC Sec 414(s) compensation); or
* Each NHCE receives an allocation of at least 5percent of compensation (determined based on IRC Sec 415(c)(3) compensation; which includes compensation earned during the plan year prior to plan entry). This is the compensation used for HCE determination; 415 limits; top-heavy allocations; etc. Employer matching contributions cannot be used to satisfy the minimum gateway.
47
How are defined contribution plans cross-tested on the basis of benefits?
Calculating an equivalent benefit accrual rate (EBAR) for each employee by expressing the allocation as an equivalent annual benefit payable as a single life annuity at the employees testing age (normal retirement age). This is a normalized benefit.
48
How are allocations converted to a benefit at the participants testing age when cross testing?
By bringing the current allocation forward to the testing age at a given interest rate and then dividing that amount by the appropriate annuity purchase rate. The converted benefit is divided into the participants current or average compensation to produce the EBAR. Allocations used may be current year (annual testing) or the entire account balance if the accrued to date method of testing is used.
49
Describe the effect of failure to satisfy nondiscrimination requirements under IRC Sec 401(a)(4) and accepted corrective amendments.
Failure to satisfy the nondiscrimination requirements under IRC Sec 401(a)(4) will result in plan disqualification. A corrective amendment may increase contributions or benefits for NHCEs or add participants so that the contributions or benefits satisfy the nondiscrimination requirements. A corrective amendment must be made by the 15th day of the tenth month after the close of the plan year affected. This type of failed test is considered a demographic failure; so once the 15th day of the tenth month has passed the plan would need to file under the IRS Voluntary Correction Program (VCP) when correcting the error.
50
What are the three types of BRF?
1) Optional forms of benefit (protected benefits under IRC Sec 411(d)(6))
2) Ancillary benefits
3) All other meaningful provisions; subject to the benefits; rights and features rules
51
What is included as optional forms of benefit in a BRF (protected benefits under IRC Sec 411(d)(6))?
* Distribution alternatives; * Payment schedule (lump sum vs. annuity); * Timing and commencement of benefits; * Medium of distribution (cash or in-kind); * Eligibility for different options; and * Election rights regarding optional forms.
52
What are included as ancillary benefits in a BRF?
* Ancillary life insurance and health insurance;
* Social Security supplement;
* Disability;
* Death benefits in a defined contribution plan; and
* Preretirement death benefits in a defined benefit plan
53
What examples are included (but not limited to) in all other meaningful provisions in a BRF?
* Loans;
* Right to make deferrals or after-tax contributions;
* Right to each rate of deferrals or after-tax contributions;
* Right to each rate of matching contribution;
* Vesting schedules;
* Right to make rollover contributions;
* Right to direct investments (e.g.; If a participant must have a $5000 balance to direct his or her investments; the right is not currently available to participants with balances less than $5000.); and
* Right to a particular form of investment (e.g.; a brokerage window; or real estate investment)
54
Which coverage tests of IRC Sec 410(b) are used to test BRF?
* Ratio percentage test; or
| * Nondiscrimination classification test.
55
Is elimination of a BRF permitted?
Yes; for future accruals; however; the BRF must meet current availability as of elimination date. No change in the terms of the BRF is permitted. In a defined benefit plan the accrued benefit must be based on the accrued benefit as of elimination date. For defined contribution plans earnings must be credited on the account balance after the elimination date.
56
What are the correction procedures of current availability violation for a BRF?
* Expanding the group covered by the BRF or alternatively removing the BRF prior to the end of the year.
* Adopt amendment within 9.5 months after plan year-end.
* May not abuse amendment procedure. Amendment must remain in effect until the end of year following the year the amendment was effective.
57
What is the effect or timing of plan amendments under IRC Sec 404(a)(4)?
* Must be nondiscriminatory
* Plan amendments include the establishment or termination of a plan; changing a BRF; and changing a benefit or allocation.
* The timing of a plan amendment cannot have the effect of significantly favoring HCEs or former HCEs.
* Discriminatory effect determined on a facts and circumstances basis.
* Past service credits cannot favor HCEs. Safe harbor past service credits limited to five years.
* If an employer receives a favorable IRS determination letter on an amendment; the determination can be relied on with respect to whether the timing of the amendment is nondiscriminatory.
58
What is a top-heavy plan?
One in which the value of the account balances (for defined contribution plans) and the present values of accrued benefits (PVABs; for defined benefit plans) for key employees exceed 60 percent of the total of such account balances or PVABs for all employees in the plan.
59
How must the employers plans be tested for top-heavy purposes?
If the employer maintains more than one plan; the plans must be aggregated for determining top-heavy status if they are part of a required aggregation group. If they are not part of a required aggregation group; the plans are tested separately for top-heavy purposes.
If a required aggregation groups top-heavy ratio exceeds 60 percent; every plan in the group is considered to be top-heavy; even if the plan would not be top-heavy if it was tested separately.
Plans that are not included in the required aggregation group may be permissibly aggregated into the group under certain circumstances.
60
What are the criteria for determining a key employee?
One of three tests must be met:
* 5 percent owner test. An employee satisfies this test if the employee owns more than 5 percent of the employer (or more than 5 percent of a related employer). No minimum level of compensation is required.
* 1 percent owner test. An employee satisfies this test if the employee owns more than 1percent of the employer (or more than 1 percent of a related employer) and has annual compensation greater than $150000. The $150000 compensation requirement is not indexed for cost-of-living increases.
* Officer test. An employee satisfies this test if the employee is an officer and satisfies the compensation requirement. The $130000 compensation requirement is subject to cost-of- living adjustments; and has been adjusted to $160000 for 2009 & 2010. There are a maximum number of officers who must be treated as key employees. The maximum is 10 percent of the number of employees or 3; whichever is greater. However; no more than 50 officers are treated as key employees; even if the 10 percent cap is greater than 50.
61
What are the two main requirements when a plan is top-heavy?
* Vesting must be accelerated if the plan is a defined benefit plan. The vesting schedule must be at least as liberal as one of the two minimum schedules normally applicable to defined contribution plans: three-year cliff vesting or six-year graded vesting.
* Non-key employees must receive minimum levels of contributions (in defined contribution plans) or benefit accruals (in defined benefit plans).
62
What are the requirements for top-heavy defined contribution plans?
Generally, all non-key employees employed on the last day of the plan year must receive an employer contribution of at least 3 percent of compensation (or a contribution equal to the highest percentage of compensation allocated to the account of any key employee including deferrals) for the entire plan year. It must be based on full year compensation even if other allocations are based on compensation from the date of plan entry. Both employer matching and non-elective contributions can be used to satisfy the top heavy contribution requirement.
63
What are the requirements of the defined contribution plans; as it relates to a top-heavy plans?
Generally; all non-key employees employed on the last day of the plan year must receive an employer contribution of at least 3 percent of compensation (or a contribution equal to the highest percentage of compensation allocated to the account of any key employee including deferrals) for the entire plan year. It must be based on full year compensation even if other allocations are based on compensation from the date of plan entry. Both employer matching and nonelective contributions can be used to satisfy the 3 percent requirement.
64
What is the db top heavy minimum benefit?
All non-key employees credited with at least 1000 hours of service must receive a benefit that is not be less than 2 percent of average compensation; multiplied by year of service (up to ten years).
65
Why should top-heavy minimum be coordinated with gateway eligibility?
The top-heavy minimum contribution can be used towards the minimum gateway for a cross- tested plan. Top-heavy minimums should be coordinated with gateway eligibility because an NHCE may not fulfill the allocation requirements to receive an employer contribution (e.g.; if there is a 1000 hour requirement in a DC plan); but if that NHCE is employed on the last day of the plan year; he or she must receive the top-heavy minimum allocation in a dc plan which makes the NHCE a benefiting participant and therefore subject to the gateway requirement. Some plans contain provisions to automatically increase allocations to meet the minimum gateway without a new amendment.
66
What plans are not subject to top-heavy rules?
401(k) safe harbor plans are not subject to the top-heavy rules as long as the only contributions to the plan are elective deferrals; including designated Roth; and the required safe harbor contribution.
SIMPLE IRA and SIMPLE 401(k) plans are not subject to the top-heavy rules.
67
What are three alternative safe harbors for compensation?
1) IRC Sec 415(c)(3) compensation
2) Compensation subject to federal income tax withholding; as defined in IRC Sec 3401(a); regardless of limitations based on nature or location of employment. 3) Compensation reported on Form W-2 (as defined under IRC Sec Sec 6041(d); 6051(a)(3); and 6052).
68
What is excluded from IRC Sec 415(c)(3) compensation; as it relates to a safe harbor?
* Reimbursements or other expense allowances;
* Fringe benefits (taxable and nontaxable);
* Moving expenses;
* Deferred compensation; and
* Welfare benefits.
69
What are the requirements of a nonsafe harbor compensation?
* Nonsafe harbor compensation definitions must be reasonable.
* May not favor HCEs by design.
* Must satisfy a quantitative test.
70
Describe the features of the nonsafe harbor test for compensation.
The test divides the nonsafe harbor compensation amount into the safe harbor compensation amount for each employee. The average percentage of safe harbor compensation that is included in the nonsafe harbor definition for the HCEs may not exceed the average percentage for the NHCEs by more than a de minimis amount. The de minimis amount is not specified under the regulations.
If a nonsafe harbor definition is being used and there are self-employed individuals included in the test; their nonsafe harbor compensation is determined by multiplying their earned income under IRC Sec 415(c)(3) by the average percentage of safe harbor compensation that is included in the nonsafe harbor definition for NHCEs.
71
For defined benefit plans, what definition of compensation must be used for 401(a)(4) testing?
The average of IRC Sec 414(s) compensation over at least three consecutive years when calculating the accrual rate. Current compensation can be used with the annual method for defined benefit plans.
72
For defined benefit plans, what must be the definition of compensation used for 401(a)(4) testing?
The average of IRC Sec 414(s) compensation over at least three consecutive years when calculating the accrual rate. Current compensation can be used with the annual method for defined benefit plans.
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