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EA-2L > 410(b) Coverage NDT > Flashcards

410(b) Coverage NDT Flashcards

1
Q

How do you satisfy 410(b) for Former Employees?

A

It is based on facts + circumstances (must not discriminate in favor of former HCEs

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2
Q

What is a plan’s ratio percentage? How do you pass?

A
  1. (# of NHCE benefiting / Total Non-excludable NHCEs)
    (# of HCE benefiting / Total Non-excludable HCEs)
  2. Must be greater than 70% to pass
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3
Q

How are plans determined under 410 (Coverage Non-discrimination Testing)?

A

If you can identify assets that pay out certain benefits, then separate plans

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4
Q

Which plans MUST be disaggregated for 410(b) Testing?

A
  1. 401(k) and 401(m) plans
  2. ESOPs and non-ESOPs
  3. Plans with employees that are:
    a. QSLOBs
    b. CBA
    c. Employees of more than one employer
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5
Q

T/F If you aggregate plans under 410, you must use the same plan grouping for 401(a) testing as well.

A

TRUE

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6
Q

T/F A plan may be used in multiple aggregations under 410 testing. I.e. if there are 3 plans (A, B, C), you may aggregate and create the following testing groups: AB, AC.

A

FALSE

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7
Q

Which plans may be aggregated for 410(b) testing purposes?

A

Any plans not explicitly disallowed that have the same plan year

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8
Q

Definition: ABPT Testing Group

A

Must aggregate all plans except plans with employees that are CBA or Employees of more than one employer.

Note: ABPT Testing Group also ignores the rules for plans having the same plan year.

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9
Q

How are excludable employees that benefit under a plan treated for Non-discrimination testing?

A

Excluded

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10
Q

If there are multiple plans and an employer wishes to exclude ees because of age and service, which set of age and service requirements must they use?

A

Least Restrictive

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11
Q

Which employees are excludable for 410(b) testing?

A
  1. Those who don’t meet minimum age + service requirements for the plan
  2. Those who don’t have income subject to income tax (Aliens!!)
  3. CBA Employees
  4. QSLOBs
  5. Terminating Employees
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12
Q

What are otherwise excludable employees and how are they different under 410(b)?

A

They are ptp that meet eligibility for the plan, but don’t meet 21 & 1 yet. They can be split up for the ration percentage test and tested as if a seperate plan.

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13
Q

How are CBA employees treated?

A

They would be dissagregated and given an automatic pass

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14
Q

When can you exclude terminating employees? What is the default exam condition.

A

If all apply:

i. Ee does not benefit under plan for the plan year
ii. Ee is eligible to participate
iii. To accrue benefit (or get allocation), plan has minimum period of svc, or last-day requirement,
iv. Ee fails to accrue benefit solely due to failure to satisfy item iii
v. Ee terminates with 500 hours or less, not ee on last day plan yr (Or use 91 days or 3 months, based on plan service equivalents)

Default exam condition is that we use elapsed time method so no minimum period of service (i.e. this exception doesn’t apply).

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15
Q

Who are benefiting employees?

A

Employees that:

  1. Get allocation of contributions or forfeiture in a DC Plan
  2. Receive a benefit increase in a DB plan
  3. get a premium paid in a 412(i) plan
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16
Q

Can a former employee benefit under the plan?

A

Yes if they receive a benefit increase (i.e. ad hoc COLA). Note that in the year of termination, a ptp is both an employee and a former employee. The former employee would only benefit IFF they receive a benefit increase because of their status as a former employee.

17
Q

T/F a participant can benefit under the plan if their benefit does not increase.

A

True, could happen in following cases:

  1. Plan limits (i.e. no benefit after first 30 years)
  2. Wear-Away formula
  3. Target Benefit Plans
  4. Benefit Offsets
  5. Post NRA suspension of benefits
  6. 415 Limits
18
Q

When do you automatically pass minimum coverage requirements?

A
  1. CBAs Plans

2. If any denominator of the ratio test would be 0

19
Q

A plan allows a ptp to enter the plan at the earlier of six months and 1st of the year after satisfying 21&1. If a ptp hits 21&1 in Oct, are they excludable for the ratio test?

A

Yes - exclude because they have not entered the plan yet.

20
Q

What is the Non-highly compensated concentration percentage? Does the grouping here match the ABPT groups or ratio % groups?

A

non-excludable NHCEs / (Total Employees)

Based on ABPT grouping of plans

21
Q

Explain the non-discriniminatory classification test

A
  1. Calculate the NHCCP
  2. Truncate it and look up in table the Safe and Unsafe Harbor Percentage
  3. If Ratio Percentage > Safe Harbor, then good.
  4. Else if Ratio Percentage > Unsafe Harbor, then based on IRS facts and circumstances
  5. Else if less than Unsafe Harbor - FAIL
22
Q

What is the Average Benefit Percentage Test?

A
  1. (Sum NHCE benefit accruals / # non-excludable NHCE) / (Sum HCE benefit accruals / # non-excludable HCE) > 70%
  2. For employees not benefiting under the plan, the benefit accrual is 0%
    3 Use all plans in the testing group. Use plan years that end in the same year.
  3. Must consistently use either a benefits bases or a contributions basis, which will be discussed in 401(a)(4)7. IMPUTED DISPARITY – DON:T KNOW YET”
23
Q

When combining plans for ABPT testing, how do you treat plans with different plan years?

A

Choose the plan years that end in that calendar year

24
Q

When must you use the Most Valuable Accrual Rate for ABPT?

A

Must use Most Valuable Accrual rate if any plan in the testing group has less than a 4% ERF for any age within 5 years of NRA.
Exception: Availability of the ERF to NHCEs is at least 70% of the availability of the ERF to HCEs

25
Q

T/F The benefit accruals in the Average Benefit Percentage Test include the employee provided portion of the benefit?

A

False Employer only

26
Q

What is the annual testing method for Non-discrimination testing?

A
  1. Testing 410(b) as of the last day of the year.
  2. If an employee on any day in the plan year, then they are an employee for this test.
    Must use annual method for 401(k) and 401(m) plans
27
Q

If a plan fails ration test, what tests must they pass to satisfy 410(b)

A
  1. create a group that passes the reasonable classification test, which is based on the facts and circumstances
  2. Pass ABPT Test
    Pass Non-discriminatory classification test
28
Q

Effect of Acquistions / Dispositions on 410(b)

A

If a plan has an acquisition/disposition and met the coverage before acquisition, then they automatically pass in the current and following plan year if there is not a significant change in coverage.

29
Q

What is the midpoint range?

A

midpoint of safe and unsafe harbor

EA-2L (21 decks)

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