Course 3 Coverage Flashcards
(19 cards)
Who is included in the coverage testing group?
All non-excludable employees must be tested. You can run two tests for statutory and otherwise excludable employees.
What plans must be disaggregated for minimum coverage purposes?
401a, 401k, and 401m plans.
An employee is benefiting if…
- They receive an allocation and/or forfeitures.
- They are eligible to defer and receive an employer match.
- If they have an exception like they have already reached the annual additions limit under 415.
What are the steps in the Ratio Percentage Test?
- Determine the HCE and NHCE groups.
- Determine the excludable and non-excludable employees.
- Determine the benefiting and non-benefiting employees.
- Determine the NHCE benefiting ratio.
- Determine the HCE benefiting ratio.
- Determine if the ratio percentage passes the test.
How is the NHCE benefiting ratio calculated?
Benefiting NHCE / Total NHCE.
How is the ratio percentage calculated?
NHCE ratio / HCE ratio.
When is it beneficial to use the otherwise excludable employee method?
If your plan does not pass coverage with those employees, then they are tested separately. This is helpful when you have many otherwise excludable employees.
What is coverage testing?
Must be passed to be a qualified plan, plan benefits a minimum number of employees depending on the size of the employer, employee demographics, and sometimes the level of benefits provided.
What are the coverage testing methods?
- Ratio percentage test (410b) - find the percent of NHCE’s benefiting compared to the percentage of benefiting HCE’s - must be at least 70% to pass.
- Average benefit test - used when ratio percentage is failed.
Do coverage testing methods need to be in the plan document?
No.
What does 401a represent?
Part of the plan which represents the employer’s nonelective contributions and QNECs.
What does 401k cover?
Covers the 401k pretax and Roth deferrals.
What does 401m cover?
Covers the after-tax contributions, employer match, and QMAC’s.
Does the coverage testing method need to be consistent across each ‘plan’?
No.
What is the otherwise excludable employee method?
Employers may elect to disaggregate the otherwise excludable employees in coverage testing as if it were a separate ‘plan’. These employees will have a whole other test.
What are the entry dates for otherwise excludable employees?
- Statutory entry date - first day of the next plan year or if earlier, the date which is six months from completing the minimum statutory requirements.
- Plan’s entry date - use the plan’s actual entry dates to determine whether an employee is otherwise excludable.
- No waiting period - no period beyond the date on which the employee satisfies the maximum age and service requirements in IRC.
What are the consequences of failing coverage?
Disqualification or adopt a corrective amendment up to 9.5 months after the close of the plan year which expands the group of NHCE’s who benefit under the plan by lowering hour requirement or allocation contributions to terminated employees.
Who are considered excludable employees?
Must be excludable the entire testing period (plan year):
- Employees that do not meet age or service requirements.
- Terminated with less than 501 hours or 91 consecutive days or 3 consecutive months.
- Collectively bargained employees.
- Employees who are nonresident aliens (receive no US income).
Plans that are deemed to pass the coverage test…
if the plan only covers NHCE’s, if the plan consists of only HCE non-excludable employees, and collectively bargained plans that only cover union employees
