Performing Nondiscrimination Testing

This chapter provides an overview of Section 401 nondiscrimination tests and discusses how to:

Important! The information in this chapter regarding the basic and alternate Section 401(k) nondiscrimination tests is based on the criteria in effect at the time the template was originally designed. It is not intended to be a guide on how to comply with nondiscrimination testing or to summarize current legal regulations.

PeopleSoft Benefits provides these nondiscrimination tests for your use as a template, not to be used for actual reporting.

Click to jump to parent topicUnderstanding Section 401 Nondiscrimination Tests

This section describes:

Important! PeopleSoft Benefits provides these nondiscrimination tests for your use as a template, not to be used for actual reporting.

Click to jump to top of pageClick to jump to parent topicBasic and Alternate Section 401(k) Tests

To be considered nondiscriminatory, a 401(k) plan must meet one of two tests:

Click to jump to top of pageClick to jump to parent topicBasic and Alternate Section 401(m) Tests

The basic Actual Contribution Percentage (ACP) test for Section 401(m) states that the average ACP for highly compensated employees (ACP HCE) cannot be more than a certain percentage of the average ACP for employees who are not highly compensated (ACP NHCE ).

According to the alternate 401(m) test, the ACP HCE cannot exceed the ACP NHCE by more than a certain percentage, provided that the difference between the ACP HCE and the ACP NHCE does not exceed a certain percentage point.

Click to jump to top of pageClick to jump to parent topicThe Aggregate Limit Test

If both the ADP and ACP tests do not pass the basic percentage test and both pass the alternative percentage test, the system automatically runs the new Aggregate Limit test when you run the 401(k) or 401(m) NDT report. The Aggregate Limit Test indicates that the sum of the ADP and ACP for the entire group of eligible highly compensated employees cannot exceed the aggregate limit of the nonhighly compensated group, which is the greater of:

  1. The sum of 1.25 times the greater of the ADPNHCE or the ACPNHCE and 1.25 times the greater of the ADPNHCE or the ACPNHCE AND

  2. Two percentage points plus the lesser of the ADPNHCE or the ACPNHCE, with the exception that this cannot exceed two times the lesser of the ADPNHCE or the ACPNHCE OR

  3. The sum of 1.25 times the lesser of the ADPNHCE or the ACPNHCE AND

  4. Two percentage points plus the greater of the ADPNHCE or the ACPNHCE, with the exception that this cannot exceed two times the greater of the ADPNHCE or the ACPNHCE.

The results of the Aggregate Limit Test appear on the new Section 401 Results page after the 401(k) and 401(m) reports have been run. If you view the Section 401 Results page before you run one or both of these reports, the Aggregate Limit Test portion of the Section 401 Results page will be blank.

Click to jump to parent topicDefining Highly Compensated Earnings

Before you run a nondiscrimination test, define the highly compensated earnings to be processed in the nondiscrimination test.

To define highly compensated earnings:

  1. Define a special accumulator for highly compensated earnings.

  2. Link that special accumulator to the appropriate earnings.

Important! PeopleSoft software provides these nondiscrimination tests for your use as a template, not to used for actual reporting.

See Also

Establishing Earnings Programs

Click to jump to parent topicIdentifying Highly Compensated Employees

Now that the parameters for running nondiscrimination testing are defined, you must identify employees who are highly compensated employees (HCE) using the Job Data (JOB_DATA) component.

A highly compensated employee is defined as someone who meets one of the following criteria:

An active employee is not treated as highly compensated in the current (determination) year if that employee was not considered highly compensated in the preceding (look-back) year. This rule does not apply if the employee is a 5 percent (or more) owner. The system does not classify employees hired during the current year as highly compensated employees unless they also are or were a 5 percent (or more) owner during the current year.

To identify employees who are 5 percent (or more) owners:

  1. Access the Work Location - Employment Information: Employment Data page.

  2. Select the Owns 5% (or More) of Company check box to identify an employee as a 5 percent or more owner.

See Also

Increasing the Workforce

Click to jump to parent topicSetting Up Test Criteria and Plans

To set up nondiscrimination testing, use the nondiscrimination testing (NDT_HCE_TABLE_GBL) component.

You can perform nondiscrimination tests for 401(k) and 401(m) plans. For 401(k), the system uses before-tax amounts. For 401(m), it uses after-tax amounts. Perform these tests according to IRS criteria that you define, for the benefit plans that you identify.

Important! PeopleSoft software provides these nondiscrimination tests for your use as a template, not to use for actual reporting.

Click to jump to top of pageClick to jump to parent topicPage Used to Set Up Test Criteria and Plans

Page Name

Definition Name

Navigation

Usage

Nondiscrimination Rules

NDT_HCE_TABLE

Set Up HRMS, Product Related, Base Benefits, Nondiscrimination Rules, Nondiscrimination Rules

Define the regulatory rules governing your nondiscrimination testing.

Click to jump to top of pageClick to jump to parent topicSetting Up Test Parameters

Access the Nondiscrimination Rules page. (Set Up , Product Related, Base Benefits, Nondiscrimination Rules, Nondiscrimination Rules)

Effective Date

Enter the effective date for your nondiscrimination test criteria. The effective date enables you to maintain a history of your test criteria.

HCE Determination Criteria

Compensation Minimum

Set up the system to account for all employees who have received the compensation minimum, or narrow the determination down to those employees who received the compensation minimum and who are among the most highly paid (top 20 percent) employees in your organization. You can change this percentage.

Minimum Age and Minimum Service Months

To set up your system to exclude certain employees from the determination of the top paid 20 percent of employees in your organization, enter the appropriate minimum age or minimum service months.

Because HCE determination is based upon the previous year's wages, the system refers to the end of the previous year when checking these values against the employee population. If you are running your nondiscrimination test for the current plan year and you've set a minimum age of 21, the top 20 percent group will be reduced by the number of employees who have not reached age 21 by the end of the previous plan year.

ADP Calculation Criteria

Annual Compensation Lmt (annual compensation limit) and Annual Contribution Lmt (annual contribution limit)

Enter the annual compensation limit and annual contribution limit for the test.

Calculate using

Select which year's data to use to perform the ADP and ACP calculations.

The options are Current Year and Previous Year.

Note. Because the nondiscrimination testing procedure for 401(k) and 401(m) plans includes compensation data from the preceding plan year, you should use the results of the tests to better forecast for the current year. This is because the preceding year compensation data is used to calculate actual deferral percentages and actual contribution percentages for the nonhighly compensated employee (NHCE) population, upon which nondiscrimination test results are based. With these figures defined, you can monitor your HCE population for compliance.

If you choose to perform nondiscrimination testing using previous year NHCE data, You do not need to perform NHCE forecasting; you need to forecast only HCE data and compare it to the previous year's data. You can still elect to test based on the current year's data, however, and use the forecasting feature to help monitor your plan's nondiscrimination status throughout the year.

Click to jump to top of pageClick to jump to parent topicIdentifying Benefit Plans to Include in a Test

To identify benefit plans to include in NDT testing:

  1. Access the Benefit Plan Table page.

  2. Select the Include in Nondiscrimination Testing check box.

    The test will include all of the benefit plans with this check box selected. This option is available for all savings plans.

See Also

Defining Benefit Plans

Click to jump to parent topicDefining the Nondiscrimination Test Run Control

After you set up your special accumulators and their associated earnings, set up the parameters for your nondiscrimination test through run control pages.

Important! PeopleSoft software provides these nondiscrimination tests for your use as a template, not to use for actual reporting.

This section discusses how to

Click to jump to top of pageClick to jump to parent topicPages Used to Define the Nondiscrimination Test Run Control

Page Name

Definition Name

Navigation

Usage

Define Test Information (Section 401 Testing)

RUNCTL_NDT

Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, Define Test Information, Define Test Information

Define the special accumulator that you want the system to use, and identify the company and pay group combinations that you want to include in your test.

Define Test Information (Section 129 Testing)

RUNCTL_129

Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Define Test Information, Define Test Information

Define Section 129 rules to specify information that controls nondiscrimination testing for Section 129 dependent care reimbursement accounts.

Click to jump to top of pageClick to jump to parent topicDefining Special Accumulators and Company and Pay Group Criteria

Access the Define Test Information page for Section 401 testing (Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, Define Test Information, Define Test Information).

Plan Year Begin Date

Enter the first day of the plan year to use for the test.

Month End Date

Enter the month end date through which compensation data will be in the database.

Year End Projection Percentage

Enter the percentage that you want the system to use.

When testing for the current year, this field enables you to define whether the system projects until year-end.

Special Accumulator Code

Enter the special accumulator code for the test. The system uses this accumulator to determine employee compensation for the test.

Benefits Base

Enter the benefits base that you want to use, either Annual Rate or Annual Benefits Base Rate. For example, suppose that you initiate a test for the current year on May 31, but you want projections until the end of the plan year. You need to project for the remaining 7 of the total 12 months, which means that you enter 58.33% as the year end projection percentage.

Year Code

Indicate whether testing is for the Current and Prior Plan Year, the Current Plan Year, or the Prior Year. Because the rules for the determination of highly compensated employees determines HCE status based primarily upon the previous year's data, the system must gather salary information for the previous year and store it. When you run a Section 401 test for the first time in the testing year, always select Current and Prior Plan Year on the 401 NDT Run Control page. In subsequent testing throughout that year, you can select Current Plan Year.

NDT Section 401

Company and Pay Group

Identify the companies and the pay groups that you want to include in this test.

Click to jump to top of pageClick to jump to parent topicDefining Section 129 Rules

Access the Define Test Information page for Section 129 testing (Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Define Test Information, Define Test Information).

Special Accumulator Code

Enter the special accumulator code for the test. The system uses this accumulator to determine employee compensation for the test.

Plan Year Begin Date

Enter the beginning date for the plan year that you want to use for the test.

Month End Date

Enter the month end date through which compensation data will be in the database.

Benefits Base

Enter the benefits base—either Annual Rt or Benef Base.

Year Code

When you run a Section 129 test for the first time in the testing year, always select Both Years on the 129 NDT Define Test Information page. In subsequent testing throughout that year, you can select Current Yr.

Note. The system requires you to always select the Both Years option if you will be testing based on Separate Lines of Business (SLOB). You can choose from Both Years, Current Yr, or Prior Yr.

Exclusion Min Service Months (exclusion minimum service months)

Enter the minimum length of service for employees included in the test.

Exclusion: Minimum Age

Enter the minimum age limit for the employees included in the test.

Employee Test Population

Company and Pay Group

Identify the companies and the pay groups that you want to include in this test.

SLOB (Separate Line of Business) Criteria for the 55% Test

Select the method of restricting the test population. You can restrict the test population by company and pay group or by SLOB.

Cafeteria Plan

Select this check box if you have a flexible benefits or cafeteria plan.

Dollar Limit

Enter the earnings amount below which you want the system to exclude employees from the Section 129 test.

Companies that have cafeteria plans typically set the dollar limit to $25,000, but it can be set lower. If you set the limit to $25,000, employees who earn less than that amount will be excluded from the Section 129 test.

Minimum Employee Count

Enter the minimum number of employees for a separate line of business to be included in the test.

Company and Pay Group

If you use SLOB, indicate the company and pay group that are associated with each separate line of business.

Click to jump to parent topicRunning Nondiscrimination Tests

This section discusses how to:

Important! PeopleSoft software provides these nondiscrimination tests for your use as a template, not to use for actual reporting.

Click to jump to top of pageClick to jump to parent topicPages Used to Run Nondiscrimination Tests

Page Name

Definition Name

Navigation

Usage

Identify Highly Comp Employees

RUNCTL_NDT001

  • Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Identify Highly Comp Employees, Identify Highly Comp Employees

  • Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, Identify Highly Comp Employees, Identify Highly Comp Employees

Determine the number of highly compensated employees in your organization before you perform Section 401 or Section 129 nondiscrimination tests.

401(k) Nondiscrimination Test - Run Control

PRCSRUNCNTL

Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, 401(k) Nondiscrimination Test, Run Control

Initiate 401(k) testing.

NDT Section 401(m) Testing

PRCSRUNCNTL

Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, 401(m) Nondiscrimination Test, NDT Section 401(m) Testing

Run 401(m) testing.

Eligibility Cross Section Test

PRCSRUNCNTL

Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Eligible Cross Section Test, Eligibility Cross Section Test

Run Section 129 nondiscrimination eligibility cross section testing.

55 Pct Average Benefits Test (55 percent average benefits test)

PRCSRUNCNTL

Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, 55% Pct Average Benefits Tests, 55 Pct Average Benefits Test

Run Section 129 nondiscrimination 55% average benefits testing.

Concentration Test

PRCSRUNCNTL

Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Concentration Test, Concentration Test

Run Section 129 nondiscrimination concentration testing.

Click to jump to top of pageClick to jump to parent topicDetermining the Number of Highly Compensated Employees

Access the Identify Highly Comp Employees page (Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing or Section 401 Testing, Identify Highly Comp Employees, Identify Highly Comp Employees).

Warning! Before determining the number of highly compensated employees, first set the nondiscrimination test parameters.

NDT Test Type

Choose from the following values: Std NDT (Standard Nondiscrimination Test, for Section 401 plans), 129 NDT (Section 129 Nondiscrimination Test), and 129 SLOB (Section 129 Separate Line of Business Nondiscrimination Test).

Click to jump to top of pageClick to jump to parent topicRunning 401(k) and 401(m) Testing

Access the 401(k) Nondiscrimination Test - Run Control page (Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, 401(k) Nondiscrimination Test, Run Control) or the NDT Section 401(m) Testing page (Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, 401(m) Nondiscrimination Test, NDT Section 401(m) Testing).

Warning! Before running a nondiscrimination test using this page, you must first set the nondiscrimination test parameters in the 401 NDT Run Control page and determine the number of highly compensated employees in the NDT 401 HCE Test page.

When the system performs a test, it uses the total eligible earnings for employees. For total earnings, the system uses the earnings balance for the special accumulator that you defined in the run control for this test.

If an employee works in multiple companies, the system accumulates earnings for all the companies that you marked for nondiscrimination testing.

Click to jump to top of pageClick to jump to parent topicRunning Section 129 Nondiscrimination Testing

Access the appropriate Section 129 NDT page.

Note. For SLOB users, the SLOB rules apply only to the NDT 129 55% Average Benefits test. If you want to run this test for separate lines of business, use the following procedure:

To run the Section 129 SLOB testing process:

  1. Run the Highly Compensated Employees determination test.

    Select 129SLOB as your NDT Test Type.

  2. Run the NDT 129 55% Average Benefits test.

  3. Rerun the Highly Compensated Employees Determination test.

    This time, select 129NDT as your NDT Test Type.

  4. Run the remaining NDT 129 tests.

Warning! Before running a nondiscrimination test using this page, first set the nondiscrimination test parameters in the 129 NDT Define Test Information page and determine the number of highly compensated employees in the 129 Identify Highly Comp Employees page.

When the system performs a test, it uses the total eligible earnings for employees. For total earnings, the system uses the earnings balance for the special accumulator that you defined in the run control for this test.

If an employee works in multiple companies, the system accumulates earnings for all the companies that you marked for nondiscrimination testing.

Click to jump to parent topicUnderstanding Nondiscrimination Test Results

As a result of a nondiscrimination test, the system updates employee data for the current and previous year tests using these codes:

N

Indicates that an employee is not eligible for the plan.

E

Indicates a highly compensated employee who is not a 5 percent owner.

H

Indicates a highly compensated employee (who may be a 5 percent owner).

The Savings Plan election page displays the Highly Compensated check box for the current year only. The previous year's highly compensated flag is not available online.

Important! PeopleSoft software provides these nondiscrimination tests for your use as a template, not to use for actual reporting.

Click to jump to parent topicViewing Nondiscrimination Test Results

This section discusses how to:

Important! PeopleSoft provides these nondiscrimination tests for your use as a template, not to use for actual reporting.

Click to jump to top of pageClick to jump to parent topicPages Used to View Nondiscrimination Test Results

Page Name

Definition Name

Navigation

Usage

Savings Plans

SAVINGS_PLANS1

Benefits, Enroll In Benefits, Savings Plans, Savings Plans

View nondiscrimination test results for an individual.

Review Test Results (for 401(k))

NDT_401_RESULTS

Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, Review Test Results, Review Test Results

View the nondiscrimination test results for all employees in 401(k) and 401(m) tests.

Review Test Results (for 129)

NDT_129_RESULTS

Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Review Test Results, Review Test Results

View the nondiscrimination test results for all employees.

Click to jump to top of pageClick to jump to parent topicViewing Results for an Individual

Access the Savings Plan page (Benefits, Enroll In Benefits, Savings Plans, Savings Plan).

As a result of the last nondiscrimination test that you performed, the system indicates that an employee is highly compensated (based on the current year) by displaying the Highly Compensated indicator at the top of the page.

See Also

Enrolling Participants in Benefit Programs and Plans

Click to jump to top of pageClick to jump to parent topicViewing Section 401 Test Results for All Employees

Access the Review Test Results page for 401(k) (Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, Review Test Results, Review Test Results).

Average for HCE (average for highly compensated employees) and Average for NHCE (average for nonhighly compensated employees)

The system report the average actual contribution percentage (ACP) and actual deferral percentage (ADP) for highly compensated and nonhighly compensated employees.

Basic 125% Test and Alternate 2% Test

The systems automatically indicate a Pass or Fail status.

Discriminatory Excess

If both the Basic and Alternate 2% tests failed, the system displays the discriminatory excess percentage.

Aggregate Limit Test

If the system runs this test, it automatically indicates a Passed or Failed status.

Click to jump to top of pageClick to jump to parent topicViewing Section 129 Test Results for All Employees

Access the Review Test Results page for 129 (Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Review Test Results, Review Test Results).

This page displays the results of the Eligibility Cross-Section test, the 55% Average Benefit test, and the 5% Owner Concentration test. If you elected to test for separate lines of business, the Separate Line of Business check box is selected.

Click to jump to top of pageClick to jump to parent topicRunning Nondiscrimination Test Reports

You can produce nondiscrimination testing reports that provide a breakdown of the testing results by employee (divided into highly compensated employee and nonhighly compensated employee groups) as well as a display of the calculations involved in the test.

401 Nondiscrimination Testing reports also show the results of the Aggregate Limit test if test result conditions require this test to be performed.

See Also

Defining Benefit Plans

Click to jump to parent topicSetting Limits to Comply with Test Results

To comply with the regulations governing nondiscrimination testing, you may need to change the savings limits for a highly compensated employee for a specific benefit plan. This applies only to 401(k) and 401(m) plans.

See Also

Enrolling in Savings Plans