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Coverage Rules Coverage rules govern the admission of employees to participation in a retirement or welfare plan. The term "coverage" also refers to the IRS and rules that are designed to insure that qualified retirement plans benefit a broad cross-section of the employer's lower compensated employees. The rules for determining whether coverage is adequate in this latter sense are: 1. The Average Benefit Percentage Test: A plan will pass this test if: (a) it benefits employees under a classification that the does not discriminate in favor of highly compensated employees (the classification test); and (b) the "average benefit percentage" for lower compensated employees (their plan benefits expressed as a percentage of their compensation) is at least 70 percent of the average benefits percentage for highly compensated employees. 2. Minimum Participation Rule: A requirement for qualified retirement plans that a plan benefit at least the lesser of: (a) 50 employees; or (b) 40 percent or more of all employees of the employer. 3. Ratio Test: This test requires that the plan benefit a classification of employees that does not allow more than a specified difference between the percentage of an employer's highly compensated employees who are covered and a similarly computed percentage for lower compensated employees. For this purpose, the maximum allowable difference is a 70 percent ratio. 4. 70 Percent Test: This test requires a plan to benefit 70 percent or more of all of the employer's lower compensated employees. For this purpose, all eligible employees are considered to benefit under a plan. In a Section 401(k) plan, or a plan to which employees may voluntarily contribute or may receive employer matching contributions, all employees eligible to contribute will be considered to benefit in that portion of the plan. RELATED PRODUCTS
Salary AssessorReports "up to the present day" competitive wage, salary, and incentive survey data. Provides salary ranges and median/means for over 6,100 positions in 370 U.S. and Canadian metro areas.Download Product Demo 
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