Because a 401(k) plan is a qualified plan, it is subject to the same rules imposed by the Internal Revenue Code and ERISA as are all other qualified plans. Therefore, it must be part of a definite written plan that is communicated to employees and established solely for the benefit of employees or their beneficiaries. A 401(k) plan must also meet these requirements:
- Certain minimum funding rules;
- One of two coverage tests:
- The ratio percentage test (the percentage of the non-highly compensated employees, benefiting under the CODA must be at least 70 percent of the percentage of highly compensated employees benefiting under the CODA); or
- The average benefits test (in addition to meeting a nondiscriminatory classification test, described below, the average benefits provided by the employer for non-highly compensated employees must be at least 70 percent of the average benefits provided for the highly compensated employees)...