NONDISCRIMINATION TESTING - Dallas, TX

Presents TRAPS FOR THE UNWARY Felicia A. Finston NONDISCRIMINATION TESTING Slide No. 2 Ensure plan does not discriminate in favor of highly compensated employees ( HCEs ) as to eligibility or benefits ( , same benefits must be provided to non-HCEs ( NHCEs )) Required as a condition of tax qualification Purpose of NONDISCRIMINATION TESTING Slide No. 3 Components of NONDISCRIMINATION TESTING ( NDT ) Common NDT Gotchas Safe Harbor Plan Designs Prior Year v. Current Year TESTING Leased Employee Coverage Issues Prototype v. Individually Designed Plans ROAD MAP Slide No. 4 Code and regulations Apply to all qualified plans Different tests for different purposes Terms of the plan document Employer specific Must comply with regulations Participant contribution data Components of NDT Slide No. 5 Basic Tests Name Code Section Description Applies To Failure Rate Coverage 410(b) Ensures plan provides benefits to a sufficient percentage of employees Plan Rare Contributions 401(a)(4) Applies to defined benefit and defined contribution plans (other than elective deferrals and match) to ensure contributions don t discriminate in favor of HCEs Plan Rare Actual Deferral Percentage ( ADP ) 401(k) Ensure HCE elective deferr

Slide No. 5 Basic Tests Name Code Section Description Appli es To Failure Rate Coverage 410(b) Ensures plan provides benefits to a sufficient percentage of

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