Carpenters Individual Account Pension Plan
Appendix A: Actual Deferral Percentage ("ADP") Test
1. Annual Actual Deferral Percentage ("ADP") Testing
For each Plan Year, the Plan shall satisfy the ADP test with respect to each Testing Group (or shall refund excess Employee Elective Contributions to Highly Compensated Employees in such Testing Group until such tests are satisfied). The relevant provisions of Code Section 401(k)(3) and Treasury Regulations § 1.401(k)-1 and -2 are hereby incorporated by reference.
2. Identification of Testing Groups
2.1 Mandatory Disaggregation of Bargained and Non-Bargained Employees. For testing purposes, each Individual Employer's Employees that participate in the Plan pursuant to a collective bargaining agreement ("Bargained Employees") will be mandatorily disaggregated from its Employees that participate in the Plan pursuant to the terms of a written contribution agreement between an Individual Employer and the Trustees ("Non-Bargained Employees"). For this purpose, an Employee is considered to be a Bargained Employee if he meets the "alumni employee"definition in Treasury Regulation § 1.410(b)-6.
2.2 Employer by Employer Testing of Non-Bargained Employees. Each Individual Employer's Non-Bargained Employees will be tested separately as its own "Testing Group."
2.3 Permissive Aggregation of Bargained Employees. Each Individual Employer's Bargained Employees will be considered together with all other Individual Employers' Bargained Employees as if they are employed by a single employer that participates in the Plan, and will be treated as a single Testing Group, in accordance with Treasury Regulation § 1.401(k)-1(b)(4)(v)(B).
3. Identification of Highly Compensated Employees
Within each Testing Group, the Highly Compensated Employees will be identified and segregated into the "Highly Compensated Employee Group." The remaining employees in each Testing Group will be identified as the "Non-Highly Compensated Employee Group.
4. Deferral Percentage Calculations
4.1 Non-Bargained Employee ADR Ratio. For each Non-Bargained Employee, an individual Actual Deferral Ratio ("ADR") shall be calculated, as follows:
- The Participant's Employee Elective Contributions to the Plan during the Plan Year while employed with an Individual Employer (excluding Catch-Up Contributions); Shall be divided by:
- The Participant's Compensation during the Plan Year from such Individual Employer.
4.2 Bargained Employee ADR Ratio. For each Bargained Employee, an individual ADR shall be calculated as follows:
- The Participant's Employee Elective Contributions to the Plan made during the Plan Year while employed with all employers that are obliged by a collective bargaining agreement to contribute to the Plan; Shall be divided by:
- The Participant's aggregate Compensation during the Plan Year from such Employers.
4.3 Highly Compensated Employee ADR. The ADR for a Highly Compensated Employee shall be calculated taking into account such Participant's elective deferrals under any other cash or deferred arrangement sponsored by the Employer (excluding Catch-Up Contributions).
5. Average Deferral Percentage For Highly Compensated Employee and Non-highly Compensated Employee Groups
For each Testing Group, an Actual Deferral Percentage ("ADP") will be calculated for the Highly Compensated Employee Group and the non-Highly Compensated Employee Group.
The ADP is the average of the ADRs calculated under Section 4 of this Appendix A.
6. ADP Limitations for Highly Compensated Employee Testing Groups
For each Testing Group, one of the following ratio tests must be satisfied.
6.1 125% of Contribution Rate. The ADP for the Highly Compensated Employee Group cannot be more than 125% of the ADP for the non-Highly Compensated Employee Group for the relevant Plan Year.
6.2 Alternate Limit. Alternatively,
- The ADP for the Highly Compensated Employee Group shall not exceed by more than two percentage points (2%) the ADP for the non-Highly Compensated Employee Group for the relevant Plan Year; and
- The ADP for the Highly Compensated Employee Group shall not be more than double the ADP for the Non-Highly Compensated Employee Group for the relevant Plan Year.
6.3 Relevant Plan Year. The "relevant Plan Year" shall be the current Plan Year.
7. Correction Procedures for Failed ADP Test
If a Testing Group's initial ADP testing does not satisfy one of the ratios in Section 6 of this Appendix A, Elective Employee Contributions by the Highly Compensated Employee Group that exceed these limitations are "Excess Contributions." To the extent that any such Excess Contributions can be recharacterized as "catch-up contributions" in accordance with Internal Revenue Code§ 414(v), the Administrator shall do so. If the ADP test failure is not resolved by this action, the Administrator shall employ either or a combination of the following strategies.
7.1 Refund of Excess Contributions to Highly Compensated Employees. Excess Contributions (plus any earnings and minus any loss allocable thereto), shall be distributed no later than March 15 after a Plan Year to Highly Compensated Employees in a Testing Group to whose accounts such Excess Contributions were allocated for such Plan Year, except to the extent such Excess Contributions may be recharacterized as "catch-up contributions."
Step 1: Determine the total amount of Excess Contributions.
The total amount of Excess Contributions is the amount, if any, by which a Highly Compensated Employee's Employee Elective Contribution must be reduced to cause the ADR of the Highly Compensated Employee with the highest ADR to equal ADR of the HCE with the next highest ADR (unless a lesser amount would suffice). This process is repeated until an ADP ratio is satisfied. The sum of the reductions is the total amount of Excess Contributions.
Step 2: Apportion the Excess Contributions among the Highly Compensated Employees.
The total Excess Contributions determined in step 1 are apportioned to the Highly Compensated Employees by reducing the Excess Elective Contribution of the Highly Compensated Employee with the largest dollar amount of contributions to the amount so that it equals the dollar amount contributed by the Highly Compensated Employee with the next largest dollar amount of contributions (unless a lesser amount would suffice). This process is repeated until an ADP ratio is satisfied.
Step 3: Determine Income/Loss.
Determine any income or loss allocable to the Excess Contributions through the date such Excess Contributions are distributed using a reasonable method, in accordance with Treasury Regulation § 1.401(k)-2(b)(2)(iv). Step 4: Distribute Excess. Distribute the Excess Contributions, as adjusted for earnings and losses to the affected Highly Compensated Employees in the Testing Group.
7.2 Supplemental QNEC Contributions. Within twelve (12) months after the end of the Plan Year, an Individual Employer shall make a special Qualified Non-Elective Contribution ("QNEC") on behalf of its Non-Highly Compensated Employees in a Testing Group of an amount sufficient to satisfy one of the tests set forth in Section 6, not to exceed five percent (5%) of Compensation. Such contribution shall be allocated to each Non-Highly Compensated Employee in the Testing Group in the same proportion that each participating Non-Highly Compensated Employee's Compensation for the Plan Year bears to the total Compensation of all participating Non-Highly Compensated Employees in the Testing Group.
Last Updated: 11/10/2020