Nondiscrimination: Grouping by Names (Posted July 22, 1999) Technical Tip 9: The following question and answer appeared in "The Gray Book" (Questions to IRS/Treasury and Summary of Their Responses) from the 1999 Enrolled Actuaries Meeting: Plan A is a money purchase pension plan with the following formula: Participant B is allocated $30,000 per year. Participant C is allocated $25,000 per year. All other employees who have attained age 21 and who have at least one year of service are allocated 5% of pay each year. Plan A complies with the nondiscrimination requirements of IRC 401(a)(4) by cross-testing. Is the above design permitted? IRS Response: Yes. IRC 410(b), and the regulations thereunder, prohibit the use of individual names as part of the reasonable classification portion of the average benefits test to denote who participates in the plan, and who does not. In the above situation, all eligible employees participate, so that the use of individual names is not an issue. General tested plans use the average benefit percentage portion of the average benefits test for purposes of seeing if the plan can be tested using the midpoint between the safe and unsafe harbors in rate group testing. Since the "no names" rule is part of the reasonable classification test, and for purposes of rate group testing, the plan is considered as having passed this test, it is permissible to use names as part of the plan formula and in the testing process. 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.