PLANSPONSOR - February/March 2018 - 60

PS COACH
Nondiscrimination Testing
T
The rules keep plans from favoring highly compensated workers
o ensure that participants receive
equitable treatment in employersponsored
retirement plans, the
plans must pass tests that assess either
coverage and nondiscrimination as to benefits
or the allocation of total accumulated
benefits. Put simply, the tests annually
compare how much highly compensated
employees (HCEs) are saving in the qualified
plan in relation to what the rest of the
staff are saving.
Even though nondiscrimination
testing is likely performed by a plan's
recordkeeper or third-party administrator
(TPA), plan sponsors need to understand
the basics, including the types of contributions
that are tested, the methods used
and the consequences of failing.
The Tests
The Internal Revenue Service (IRS)
differentiates between highly and nonhighly
compensated employees (NHCEs),
defining " highly compensated employee "
as an individual who:
* Owned more than 5% interest
in the business at any time during the
current or preceding year, regardless of
how much compensation that person
earned or received, or
* For the preceding year, received,
from the business, compensation of
more than $120,000 (if the preceding
year was 2017) and was in the top 20% of
employees when ranked by compensation.
The compensation used for determining
whether an employee is an HCE
is indexed each year.
Robert Richter, vice president of FIS
Relius in Jacksonville, Florida, points
to three types of tests. First, he says, is
the 410(b) coverage test, which checks
to confirm there is broad coverage of
employees.
Second, if a sufficient number of
60 PLANSPONSOR.com February-March 2018 Art by Federica Bordoni

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PLANSPONSOR - February/March 2018

Table of Contents for the Digital Edition of PLANSPONSOR - February/March 2018

25 Years of Retirement Plans
2017 DC Survey: Providers
2018 Best In Class 401(k) Plans
Trends in Risk Assets
What Lower Fees Reveal
Sandwiched Between
Nondiscrimination Testing
PLANSPONSOR - February/March 2018 - Cover1
PLANSPONSOR - February/March 2018 - Cover2
PLANSPONSOR - February/March 2018 - 1
PLANSPONSOR - February/March 2018 - 2
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PLANSPONSOR - February/March 2018 - 25 Years of Retirement Plans
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PLANSPONSOR - February/March 2018 - 29
PLANSPONSOR - February/March 2018 - 2017 DC Survey: Providers
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PLANSPONSOR - February/March 2018 - 2018 Best In Class 401(k) Plans
PLANSPONSOR - February/March 2018 - 47
PLANSPONSOR - February/March 2018 - 48
PLANSPONSOR - February/March 2018 - 49
PLANSPONSOR - February/March 2018 - 50
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PLANSPONSOR - February/March 2018 - 53
PLANSPONSOR - February/March 2018 - Trends in Risk Assets
PLANSPONSOR - February/March 2018 - 55
PLANSPONSOR - February/March 2018 - What Lower Fees Reveal
PLANSPONSOR - February/March 2018 - 57
PLANSPONSOR - February/March 2018 - Sandwiched Between
PLANSPONSOR - February/March 2018 - 59
PLANSPONSOR - February/March 2018 - Nondiscrimination Testing
PLANSPONSOR - February/March 2018 - 61
PLANSPONSOR - February/March 2018 - 62
PLANSPONSOR - February/March 2018 - 63
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PLANSPONSOR - February/March 2018 - Cover3
PLANSPONSOR - February/March 2018 - Cover4
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