Performing Nondiscrimination Testing

This chapter provides an overview of Section 401 and Section 129 nondiscrimination tests and discusses how to:

Define highly compensated earnings.
Identify highly compensated employees.
Set up test criteria and plans.
Define the nondiscrimination test run control.
Run nondiscrimination tests.
Understand nondiscrimination tests results.
View nondiscrimination test results.
Set limits to comply with test results.

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

Understanding Section 401 Nondiscrimination Tests

This section describes:

Basic and Alternate Section 401(k) Tests.
Basic and Alternate Section 401(m) Tests.
The Aggregate Limit Test.

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

Understanding Basic and Alternate Section 401(k) Tests

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

The basic Actual Deferral Percentage (ADP) test for Section 401(k) states that the average ADP for highly compensated employees (ADP _HCE) cannot be more than a certain percentage of the average ADP for employees that are not highly compensated (ADP _NHCE).
The alternate ADP test requires that the ADP _HCE cannot exceed the ADP _NHCE by more than a certain percentage, provided the difference between the ADP _HCE and the ADP _NHCE does not exceed a certain percentage point.

Understanding Basic 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 that 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 the difference between the ACP _HCE and the ACP _NHCE does not exceed a certain percentage point.

Understanding the 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 non-highly compensated group, which is the greater of:

The sum of 1.25 times the greater of the ADP_NHCE or the ACP_NHCE, and: 1.25 times the greater of the ADP_NHCE or the ACP_NHCE, and
Two percentage points plus the lesser of the ADP_NHCE or the ACP_NHCE, with the exception that this cannot exceed two times the lesser of the ADP_NHCE or the ACP_NHCE; OR
The sum of: 1.25 times the lesser of the ADP_NHCE or the ACP_NHCE, and
Two percentage points plus the greater of the ADP_NHCE or the ACP_NHCE, with the exception that this cannot exceed two times the greater of the ADP_NHCE or the ACP_NHCE.

The results of the Aggregate Limit Test will 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.

Defining 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:

Define a special accumulator for highly compensated earnings.
Link that special accumulator to the appropriate earnings.

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

See Also

Establishing Earnings Programs

Identifying Highly Compensated Employees

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

A highly compensated employee is defined as someone who:

Was a 5 percent (or more) owner of the organization at any time during the current or preceding year; or
Received more than an indexed compensation amount in the preceding year; or
Received more than an indexed compensation amount in the preceding year, and was among the most highly paid 20 percent of employees in the organization.

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 will 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:

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

Setting Up Test Criteria and Plans

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

Page Used to Set Up Test Criteria and Plans

Page Name	Object Name	Navigation	Usage
NDT Rules Table (Nondiscrimination Rules Table)	NDT_HCE_TABLE	Set Up HRMS, Product Related, Base Benefits, Nondiscrimination Rules, NDT Rules Table	Define the regulatory rules governing your nondiscrimination testing.

Setting Up Test Parameters

Access the NDT Rules Table page.

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 take into account 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 have the option of changing 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 you want the system to use to perform the ADP and ACP calculations.

The options are Current Year or Previous Year.

Note. Because the nondiscrimination testing procedure for 401(k) and 401(m) plans includes compensation data from the preceding plan year, 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 non-highly 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, there is no need to perform NHCE forecasting; only HCE data needs to be forecasted and compared to the previous year’s data. You can still elect to test based on the current year’s data, however, and utilize the forecasting feature to help monitor your plan’s nondiscrimination status throughout the year.

Identifying Benefit Plans to Include in a Test

This section explains how you specify the benefit plans that are included in nondiscrimination testing.

To identify benefit plans to include in NDT testing:

Access the Benefit Plan Table page.
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

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

Pages Used to Define the Nondiscrimination Test Run Control

Page Name	Object Name	Navigation	Usage
NDT 401 Run Parms (parameters)	RUNCTL_NDT	Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, Define Test Information, NDT 401 Run Parms	Define the special accumulator that you want the system to use and to identify the company and pay group combinations that you want to include in your test.
Run 129 Testing	RUNCTL_129	Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Define Test Information, Run 129 Testing	Define the information that controls nondiscrimination testing for Section 129 dependent care reimbursement accounts.

Defining Special Accumulators and Company and Pay Group Criteria

Access the NDT 401 Run Parms page.

Plan Year Begin Date

Enter the first day of 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.

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 you want the system to project until year-end.

Special Accumulator Code

Enter the special accumulator code for the test. The system will use 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 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 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 for the Prior Year. Because the rules for the determination of highly compensated employees determine 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.

Defining Section 129 Rules

Access the Run 129 Testing page.

Special Accumulator Code

Enter the special accumulator code for the test. The system will use 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.

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.

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 Run Control 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.

Employee Test Population

Pay Group 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

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.
SLOB Criteria for the 55% Test	Choose the method of restricting the test population. You can restrict the test population by company and pay group or by SLOB.
Company and Pay Group	If you use SLOB, indicate the company and pay group associated with each separate line of business.

Running Nondiscrimination Tests

This section discusses how to:

Determine the number of highly compensated employees.
Run 401(k) and 401(m) testing.
Run Section 129 nondiscrimination testing.
Produce the 401 Nondiscrimination Testing report.
Produce the Section 129 Nondiscrimination Testing report.

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

Pages Used to Run Nondiscrimination Testing

Page Name	Object Name	Navigation	Usage
129 HCE Test	RUNCTL_NDT001	Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Identify Highly Comp Employees, 129 HCE Test	Determine the number of highly compensated employees in your organization before you perform Section 401 or Section 129 nondiscrimination tests.
NDT 401 HCE Test	RUNCTL_NDT001	Benefits, Conduct Nondiscrimination Tsts, Section 401Testing, Identify Highly Comp Employees, NDT 401 HCE Test	Determine the number of highly compensated employees in your organization before you perform Section 401 or Section 129 nondiscrimination tests.
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	Initiate 401(m) testing.
Eligibility Cross Section Test	PRCSRUNCNTL	Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Eligible Cross Section Test, Eligibility Cross Section Test	Initiate Section 129 nondiscrimination testing. The run control page is identical for all three tests.
55 Pct Average Benefits Tests (55 percent average benefits test)	PRCSRUNCNTL	Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, 55% Average Benefits Tests, 55 Pct Average Benefits Test	Initiate Section 129 nondiscrimination testing.
Concentration Test	PRCSRUNCNTL	Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Concentration Test, Concentration Test	Initiate Section 129 nondiscrimination testing.

Determining the Number of Highly Compensated Employees

Access the NDT 401 HCE Test page or the 129 HCE Test page.

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

NDT Test Type

Choose from the following valid 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).

Running 401(k) and 401(m) Testing

Access the 401(k) nondiscrimination Run Control page.

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.

Running Section 129 Nondiscrimination Testing

Access the NDT 129 Eligibility Cross Section Test page.

Note. For SLOB users: The SLOB rules only relate 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:

Run the Highly Compensated Employees determination test.

Select 129SLOB as your NDT Test Type.
Run the NDT 129 55% Average Benefits test.
Re-run the Highly Compensated Employees Determination test.

This time, select 129NDT as your NDT Test Type.
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 Run Control page and determine the number of highly compensated employees in the 129 HCE Test page.

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

Understanding 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 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 flag for the current year only. The previous year's highly compensated flag is not available online.

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

Viewing Nondiscrimination Test Results

This section discusses how to:

View results for an individual.
View Section 401 test results for all employees.
View Section 129 test results for all employees.
Run nondiscrimination test reports.

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

Pages Used to View Nondiscrimination Test Results

Page Name	Object Name	Navigation	Usage
Savings Plan Elections	SAVINGS_PLANS1	Benefits, Enroll In Benefits, Savings Plans, Savings Plan Elections	View nondiscrimination test results for an individual.
Results of 401	NDT_401_RESULTS	Benefits, Conduct Nondiscrimination Tsts, Section 401 Testing, Review Test Results, Results of 401	View the nondiscrimination test results for all employees in 401(k) and 401(m) tests.
NDT Results 129	NDT_129_RESULTS	Benefits, Conduct Nondiscrimination Tsts, Section 129 Testing, Review Test Results, NDT Results 129	View the nondiscrimination test results for all employees.

Viewing Results for an Individual

Access the Savings Plan Elections page.

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.

Viewing Section 401 Test Results for All Employees

Access the Results of 401 page.

Average for HCE and (highly compensated employees) and Average for NHCE (average for non-highly compensated employees)

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

Basic 125% Test and Alternate 2% Test

The systems will automatically indicate a Pass or Fail status.

Discriminatory Excess

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

Aggregate Limit Test

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

Viewing Section 129 Test Results for All Employees

Access the NDT Results 129 page.

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 will be selected.

Running 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 non-highly compensated employee groups) as well as a display of the calculations involved in the test.

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

See Also

Defining Benefit Plans

Setting Limits to Comply With Test Results

In order 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

Plan Year Begin Date	Enter the first day of 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.
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 you want the system to project until year-end.
Special Accumulator Code	Enter the special accumulator code for the test. The system will use 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 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 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 for the Prior Year. Because the rules for the determination of highly compensated employees determine 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.

Average for HCE and (highly compensated employees) and Average for NHCE (average for non-highly compensated employees)	The system will report the average actual contribution percentage (ACP) and actual deferral percentage (ADP) for highly compensated and non-highly compensated employees.
Basic 125% Test and Alternate 2% Test	The systems will automatically indicate a Pass or Fail status.
Discriminatory Excess	If both the Basic and the Alternate 2% Tests failed, the system displays the discriminatory excess percentage.
Aggregate Limit Test	If the system runs this test, it will automatically indicate a Passed or Failed status.