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EA-2L > 401(a)(4) NDT for Benefits > Flashcards

401(a)(4) NDT for Benefits Flashcards

1
Q

Definition of Testing Age? what is max uniform NRA?

A
  1. If all employees have a uniform NRA, then it is that uniform NRA
  2. If uniform NRA for ees in various groups, then testing age is the latest uniform NRA
  3. If no uniform NRA, the testing age is 65

Max uniform NRA - 65

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2
Q

What is the testing age for an employee who is older than the testing age?

A

Current Age

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3
Q

In 401(a)(4) how do you normalize the benefit? (FOP, BCD, interest rate, mortality table, gender)

A
  1. You convert to an SLA at employee’s testing age.
  2. 7.5% to 8.5%
  3. Applicable mortality table under 417(e)
  4. gender neutral
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4
Q

Under 401(a)(4), which years does the annual method use for testing service? the accrued to date method?

A
  1. Current plan year

2. Current + all prior years

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5
Q

A ptp is benefiting under a plan, but not accruing a benefit. Is that year included in testing service for 401(a)(4)?

A

Yes it is. All benefit service is included

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6
Q

What is the normal accrual rate under the annual method? Is it only expressed as a dollar amount?

A

Change in accrued benefit over the past year

Can be expressed as a dollar amt or a % of average annual comp

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7
Q

What is the normal accrual rate under the accrued date method? Is it only expressed as a dollar amount?

A

Total accrued benefit / past benefit service

Can be expressed as a dollar amt or a % of average annual comp

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8
Q

T/F you may calculate some ptp based on the annual method and some on the accrued to date method for 401(a)(4)?

A

False - Note can change year to year, but must be consistent within a year

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9
Q

MVAR definition for 401(a)(4) test?

A

Largest increase in the QJSA over measurement period at any possible ret age

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10
Q

How do you determine rate groups for 401(a)(4) under default exam conditions?

A

Look at each HCE and take all ptps with greater MVAR and NAR

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11
Q

In creating rate groups for 401(a)(4), how do you do it?

A
  1. Group rates and treat all ees in group as having midpoint
  2. NAR (1.05MP, 0.95MP)
  3. MVAR (1.15MP, 0.85MP)
  4. Can use +- 0.05% if larger
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12
Q

Is there a wrong way to create rate groups under 401(a)(4)?

A

Yes - can’t create groups where HCE accrual rates in ranges are significantly higher than non-HCE rates

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13
Q

Given Rate Groups, how do you pass 401(a)(4)?

A

Each rate group must have ratio percentage greater than:

  1. 70% or
  2. Lesser of Ratio % under 410(b) and midpoint of safe and unsafe harbor

If using 2, then plan must have passed ABPT

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14
Q

T/F 410(b) and 401(a)(4) must have the same plan groups

A

TRUE

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15
Q

What is the imputed disparity accrual rate under a DB plan? (under compensation limit)

A

If testing comp under covered compensation:

Lesser of:
2 * accrual rate AND
accrual rate + permitted disparity factor

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16
Q

What is the imputed disparity accrual rate under a DB plan? (over compensation limit)

A

If testing comp over covered compensation:

Lesser of:
accrual / (test comp - 0.5CC) AND
(accrual + permitted disparityCC) / Testing Comp

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17
Q

For 401(a)(4) DB plans what is the permitted disparity factor?

A

It is the one from the tables based on SSRA and testcomp.

It will be adjusted if ptp has annual disparity fraction over 1 or cumulative over 35.

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18
Q

Under 401(a)(4), for a plan to satisfy a safe harbor what must the plan satisfy in addition to the safe harbor formula requirements?

A
  1. Uniform NRA
  2. Same benefit formula for all ees in same benefit form
  3. Each subsidized optional FOP must be available to substantially all ees
  4. No ee contributions
  5. Benefit accrues over same YOS used in benefit formula
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19
Q

401(a)(4) Safe Harbor for Unit Credit Plans:

A
  1. Satisfies 133.33% rule
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20
Q

401(a)(4) Safe Harbor for Fractional Rule Plans

A
  1. Satisfies fractional rule
  2. Service cannot be participation if there is a participation req’t
  3. Satisfies one of the following:
    a. This plan alone satisfies ABPT test with NAR
    b. Satisfy 133.33% rule (exclude ptp > 33 years at NRA)
    c. NRA benefit is flat and requires a minimum of 25 YOS and is reduced pro-rata for those with less YOS
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21
Q

Can DC plans be tested on the accrued to date method for 401(a)(4)? Do they have to use plan year comp (i.e. no averaging)?

A

No the must be on the annual method.

Yes they must not take average of comp

22
Q

What is the NAR and MVAR for a DC plan?

A

The NAR is the sum of employer contributions and forfeitures divided by plan year comp in that year.

MVAR = NAR

23
Q

What is imputed disparity for a DC ptp with pay < earnings limit? What is earnings limit?

A

Lesser of:

  1. 2 x unadj. rate
  2. unadj rate + permitted disparity

earnings limit is TWB

24
Q

What is imputed disparity for a DC ptp with pay > earnings limit? What is earnings limit?

A

Lesser of:

  1. accrual/(comp - 0.5*TWB)
  2. (alloc + pdf*TWB) / comp

earnings limit is TWB

25
Q

How do you convert a DB plan to contribution basis?

A
  1. Figure out the increase in accrued benefit for year (must use annual method)
  2. Multiply by SLA factor
  3. Discount back from testing age with interest
26
Q

How do you convert a DC plan to a benefit bases?

A
  1. Determine increase in acct balance for measurement period.
  2. Roll it forward with interest only to Testing Age
  3. Divide by SLA Factor
27
Q

What is the minimum allocation gateway? When it is used?

A
  1. no imputed disparity, use annual method, and plan year comp
  2. each NHCE must be greater than 1/3 highest HCE rate
  3. OR each NHCE must be greater than 5%

Used to determine if plan can cross test on benefit basis

28
Q

What is the broadly available allocation rate gateway? When is it used?

A

Each group of employees that has a specific allocation rate must pass 410(b) testing (assume ABPT is passed)

Used to determine if plan can cross test on benefit basis

29
Q

T/F The plans that a permissively aggregated for the following must always be also aggregated for 401(a)(4), 410(b) and 416.

A

True

30
Q

How would aggregation work for a DB and a DC Plan on a Contribution Basis?

A
  1. Use cross testing to convert the DB Plan to a DC Plan
  2. Determine the NAR
  3. Aggregate NAR rates are the sum of the two
31
Q

When cross-testing, can you test one plan on a benefits basis and one on a contribution basis?

A

No - must be same basis

32
Q

If you aggregate two plans for 401(a)(4) with different normal retirement ages, what is the testing age?

A

65

33
Q

If you impute disparity for 401(a)(4) and aggregate plans together, do you do the imputing of disparity before or after the aggregating rates?

A

After - deemed single plan

34
Q

What is the minimum aggregate allocation DB/DC gateway?

A
  1. Calculation aggregate alloc. rates on CONTRIBUTION basis
  2. Must satisfy the following table:
    a. If greatest HCE alloc % less than 15%, then any NHCE % must be at least 1/3 of largest HCE
    b. else if < 25% then 5%
    c. else add 1% for each increase of 5%
    d. deemed to satisfy if NHCE alloc > 7.5%
  3. Instead of “any NHCE” can replace with the average NHCE rate for the DB portion only.
35
Q

What is the primarily DB in Character DB/DC gateway?

A

More than 50% of benefiting NHCEs have NAR from DB plans > than NAR from DC plans

36
Q

What is the broadly available separate plans DB/DC gateway?

A
  1. Combine all DC and all DB plans separately.

2. The two plans must pass 410(b) and 401(a)(4), assuming that they pass ABPT

37
Q

A ptp has a 2% NAR under a DC plan, 3% NAR under the DB plan and the average NAR under the DB plan is 4%. If a ptp needs 6% under the minimum aggregate allocation DB/DC gateway, do they pass?

A

Yes, can average the DB rates - i.e. 2% + 4%.

38
Q

How do you test if a plan amendment is discriminatory under 401(a)(4)? What is the safe harbor?

A
  1. It is based on the facts and figures
  2. Safe harbor if 5 years or less of past service is used for benefit increase.

Also if use more than 5 years, but no HCEs until 5 years ago, then it is non discrim.

39
Q

When do the benefit restrictions on the top 25 HCEs of all time not apply?

A
  1. FT (or current liability)/MVA (not AVA) > 110% after distribution
  2. PV of distribution < 1% of the current liability/funding target before distribution
  3. Benefit < Mandatory cash out threshold
40
Q

How do you determine the 25 highest paid HCEs of all time?

A

Each year you look at the highest salary of each HCE and add them to a list with their highest salary. I.e. the list should include people that had highest 1 year pay. Redetermined each year.

41
Q

Under 401(a)(4) which distributions are restricted to which employees?

A

25 highest paid, non-excludable HCEs.

42
Q

Under 401(a)(4) what are the restrictions for the 25 highest paid non-excludabe HCEs? When are those restrictions lifted?

A
  1. Can’t take an FOP that is greater than SLA + Social Security Supplement
  2. If person is no longer in the highest paid group or FT/MVA > 110% after distribution. Person would then be able to take LS
43
Q

401(a)(4) Nondiscrimination of BRFs Current Availability Test

A
  1. Group that BRF is available to must pass 410(b) (ignoring ABPT). All employees than have this feature available (regardless of if they could get it based on service + age) are included.
  2. If time-based - i.e. must terminate in 2008, then you do consider the age+service requirements
44
Q

401(a)(4) Nondiscrimination of BRFs Effective Availability Test

A

Facts and Figures - BRF must not substantially favor HCEs. Does reflect age + service reqt

45
Q

Average Annual Comp (401(l))/ Testing Comp (401(a)(4))) Definition (401(a)(17)? Averaging length?)

A

414(s) comp over any continuous averaging period of at least 3 years (not greater than employment period)

Each year 401(a)(17) applies

46
Q

If benefit is $3000 and testing comp is $300000 then what is the NAR?

A

great than 1% because of 401(a)(17)

47
Q

T/F FOP conversion for 401(a)(4) is done on testing assumptions not plan assumptions

A

Plan assumptions are used for FOP conversion to like a QJSA, but then testing assumptions are used for FOP normalization back to an SLA.

48
Q

T/F Annual comp must be used if using annual method in a DB Plan. in a DC plan?

A

True

49
Q

Under 401(a)(4), which of the following are used to determine allocation rates under a DC plan?

  1. employee deferral
  2. employer match
  3. employer discretionary cont.
  4. allocation of forfeitures
  5. allocation of previous earnings
A

just employer discretionary and alloc. of forfeitures.

401(k) employee deferral is deemed to pass automatically and so is 401(m)

50
Q

If cross testing - do you roll forward with mortality and interest?

A

Interest Only

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