At a TPSU program held at Lasalle University in Pennsylvania, Adjunct Lecturer Tim Dougherty reviewed with Rob Wisner, from Paragon Alliance, how failing a discrimination test is just the start of the process.
If the plan fails the test because it is top heavy, Wisner explains that his group then reviews multiple ways to run the test including carving out certain groups of employees or changing the compensation definitions. Many providers will stop after the initial test because it takes time to run it multiple ways.
- Limit the classification of HCE to the top 20%
- Use current year rather than prior year results for testing
- Allow more liberal eligibility requirements than the law requires and test the participants that meet the plan’s eligibility requirements, but not the legal limits, separately
Safe harbor plans are also an option which include:
- Traditional Match – 3% of 100% and 50% of next 2% (4%)
- Non-elective Match – 3% of 100% whether the eligible participant contributes or not (3%)
- QACA Match – for plans that auto-enroll, 1% of 100% and 50% of 5% (3.5%)
Wisner recommends that plans get proactive to improve participation through a more generous match or through plan design like automatic enrollment. The key is not to wait and prevent the issues upfront and then get creative even if the plan does fail their test.
Wisner has sponsored a number of TPSU programs because he likes to hear from plan sponsors about the daily issues they face – he finds that professionals attending are open, honest and willing to share which helps him to learn how to better serve his clients. TPSU is a purely educational forum sponsored by providers like Paragon because they believe in helping educate plan sponsors and supporting advisors that serve as adjunct lecturers like Tim Dougherty but also to hear about the trials and tribulations of running a 401k plan – like failing discrimination tests.