Use of Names to Define Tiered Allocation Groups (Posted October 21, 1999) Technical Tip 15: The following question and answer were from the IRS Q&A Session at the 1998 ASPPA Annual Conference: At the LA Benefits Conference, [an IRS representative] initially said that a cross-tested plan that names each group as consisting of a single participant would still work. Then, he hedged a little by saying that maybe that plan wouldn't be able to use the Average Benefits Test because: "individual names are bad." Would you confirm that there are different uses for the Average Benefits Test (ABT) and that the following is actually the correct application of the various rules? If we are talking about the initial passing of the 410(b) coverage test by the plan as a whole, then it is clearly correct that we wouldn't be able to use the ABT if the names were being used to define who is IN the plan and who IS NOT. But that typically is not what we are doing in a cross-tested plan. We generally fly through the 410(b) test on a ratio percentage basis (the 70% test). If, on the other hand, we are talking about the secondary use of the ABT, namely for purposes of seeing if we can use the midpoint between the safe and unsafe harbors in rate group testing, we should still be okay with using the names of groups. The "no names" rule is part of the reasonable classification test. And for the purpose of rate group testing, we get a specific pass on the reasonable classification test. IRS Response: This is correct. View all Tips © 1999-2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.