forego making matching or nonelective contributions on behalf of LTPT employees in a safe harbor plan must make an election — described below — to exclude LTPT employees for purposes of determining whether the plan satisfies the nondiscrimination and minimum coverage requirements. Impact on Nondiscrimination and Coverage Testing The proposed regulation permits an employer to exclude LTPT employees from several compliance tests, including the nondiscrimination requirements under IRC Sec. 401(a)(4), the actual deferral percentage (ADP) and actual contribution percentage (ACP) tests, ADP and ACP safe harbor provisions, and the 410(b) minimum coverage test. If the employer does not elect to exclude LTPT employees, those employees generally will be otherwise excludable employees for purposes of IRC Sec. 410(b)(4)(B). • Former LTPT Employees: Unlike LTPT employees, the proposed regulation does not permit former LTPT employees to be excluded from testing or be considered otherwise excludable because these employees have satisfied the minimum age and service requirements of IRC Sec. 410(a)(1). • All-Inclusive Testing Election: An employer’s election to exclude LTPT employees from nondiscrimination and coverage testing must apply to every nondiscrimination and coverage testing provision (as applicable). This election must also apply to all LTPT employees who are eligible to participate in the plan. • Testing Election Documentation: If a plan is an ADP or ACP safe harbor plan, the employer’s election must be included in the plan document and satisfy the safe harbor plan year requirements. If a plan is a non-safe harbor plan, the employer’s election does not have to be included in the plan document, but the plan’s terms must provide language that enables the employer to make an election to exclude LTPT employees from the nondiscrimination and minimum coverage requirements. • SIMPLE 401(k) Plan: An employer may not exclude LTPT employees for purposes of determining whether the plan satisfies the SIMPLE 401(k) requirements of IRC Sec. 401(k)(11) and (m)(10). Impact on Top-Heavy Benefits The proposed regulation permits an employer to exclude LTPT employees from the application of the vesting and minimum benefit requirements of the top-heavy test. For such an election to apply, the plan’s terms must provide that LTPT employees are excluded from the vesting and benefit requirements of IRC Sec. 416(b) and (c). The election would not apply for the purpose of determining whether a plan is a top-heavy plan and would not apply to former LTPT employees. With respect to safe harbor plans, a plan will not fail to be excluded from the definition of a top-heavy plan if the employer makes an election to exclude LTPT employees from the nondiscrimination and coverage tests and they do not make safe harbor contributions on behalf of LTPT employees (or they make nonelective or matching contributions in an amount that does not satisfy the requirements for safe harbor contributions). Employer elections regarding the nondiscrimination and coverage testing and the top-heavy benefits are considered separate elections. Next Steps Employers may rely on the proposed regulations prior to the date final regulations are published. If applicable, employers should consider the pros and cons of amending their plan’s eligibility requirements to avoid the application of the LTPT employee rules. For example, employers should consider how other variables — including the possibility of increased employer contributions and the loss of testing exemptions will affect their operation. To assist employers that choose to change their eligibility requirements, the proposed regulations provide that employers may change their eligibility requirements in operation and generally need not formally amend their plans for such changes until the end of the 2025 plan year, when other amendments for SECURE 2.0 are required. The IRS accepted written or electronic comments on the proposed LTPT regulations until Jan. 26, 2024. A public hearing is scheduled for March 15, 2024. Ascensus will continue to follow any new guidance as it is released. Visit ascensus.com for the latest developments. ERISA Operations at Ascensus consists of multiple retirement experts who work collaboratively to research and analyze new guidance as it is released. 18 In Touch
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