- What information do I need to submit for a ruling under Code section 401(a)(4) using the general test?
- Can I still provide sample calculations?
- Is there a preferred format for submitting the general test?
- When can salary deferrals be taken into consideration?
- Must I use a testing age of 65?
- What is the minimum amount of information needed for Demo 6?
What information do I need to submit for a ruling under Code section 401(a)(4) using the general test?
What is generally required is a copy of the nondiscrimination test showing that the plan passes the relevant general test and the information listed in the instructions to Schedule Q. The precise amount of data that must be disclosed will vary among plans, but all plan sponsors are required to provide certain information, including, but not limited to: plan year being tested; basis of testing (contributions or benefits); description of the method used to determine allocation or accrual rates; what, if any, special attributes (imputing disparity, grouping of accrual rates, etc.) were used; and, if cross-tested, the interest rate and mortality table used to normalize benefits. (See Schedule Q instructions for complete list).
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Can I still provide sample calculations?
Yes - the Service will accept sample calculations, especially for cases with a large number of participants (such as greater than 500). The calculations should show what method was used and how the accrual or allocation rate was calculated for each participant. If the test imputed permitted disparity, we would like the samples to include at least one participant above and one below the covered compensation level (taxable wage base if tested on a contributions basis). The material submitted should also include any additional information described in the instructions to Schedule Q that is applicable to the plan being tested.
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Is there a preferred format for submitting the general test?
No, any format is acceptable as long as the information enables the Service to determine how the test was run and if the allocations or benefits used in the test conform to plan provisions. If this data is present, the Service can follow the methodology used in performing the test and make a final determination as to whether the plan satisfies section 401(a)(4). For example, The ABC Company could submit the following:
- See attached Demo 6.
- Three rate groups - see page 5 of demo 6.
- Tested on a benefits basis.
- 1999 plan year.
- Method of determining allocation/accrual rates - PV $1 using UP 84 and 8.5%.
- Not imputing disparity.
- No grouping was done.
- Demonstration of how benefits are normalized - see attachment.
- Definition of compensation - W2 comp with no exclusions and satisfies 1.414(s)-1(c)(2).
- Period used in determining comp - plan year 1/1 - 12/31.
- Testing age - 65.
- Not Applicable (DB only).
- Not Applicable (DB only).
- Not Applicable (DB only).
- Not Applicable (DB only).
- Not Applicable (DB only).
- Not Applicable (DB only).
- Not Applicable (DB only).
- Not Applicable (DB only).
- Cross testing - see attachment.
- Cross testing - see attachment.
The above, along with a copy of the general test and any attachments mentioned, would be acceptable.
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When can salary deferrals be taken into consideration?
Salary deferral contributions (which are tested separately for nondiscrimination using the actual deferral percentage test of section 401(k)) are not included in the determination of allocation or accrual rates used to form rate groups for purposes of a general test for nondiscrimination under section 401(a)(4). However, if the average benefit percentage test is used to demonstrate that rate groups established under a general test satisfy the coverage requirements of section 410(b), the computation of the benefit percentage of each participant must include salary deferral contributions.
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Must I use a testing age of 65?
If the plan does not provide for a uniform normal retirement age, the employee's testing age is 65. If the plan defines a uniform normal retirement age, this is the age that should be used. A plan is permitted to use different uniform normal retirement ages for different employees or different groups of employees, and the testing age of an employee who is beyond the plan's testing age is his or her current age. For more information, see Regulations section 1.401(a)(4) - 12.
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What is the minimum amount of information needed for Demo 6?
The items of data that are necessary to perform a general test include plan participants (names need not be disclosed on the actual test), birth date or attained age of each participant (applicable to defined benefit plans or defined contribution plans cross-tested on a benefits basis), allocations or accruals for the plan year being tested, compensation, and relevant plan provisions for allocations or accruals.
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