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Compliance Testing Guide

Introduction Nondiscrimination testing is one of the most critical aspects of plan administration. Maintaining a tax-qualified plan provides significant tax advantages to both the plan sponsor and the plan participants. Failure to comply with the nondiscrimination testing requirements may jeopardize the tax-qualified status of the plan. The Compliance testing service offered by Prudential can help your plan comply with nondiscrimination tests that the government has established. If you have elected our compliance testing services, this booklet will assist you with general guidelines and help you understand how a successful submission of plan data will result in the efficient and accurate completion of your tests. If your plan's nondiscrimination tests are not administered within the time frames specified by federal regulations, the employer may be subject to penalties, excise taxes and potential plan disqualification. If testing information is not remitted by Prudential’s deadlines and your plan's nondiscrimination testing is not completed by the applicable regulatory deadlines, Prudential will not be responsible for completing past due testing. Failure to complete a test applicable to your plan and timely correct any failures may result in plan disqualification. For example, a failed ADP/ACP test must generally be corrected within twelve months following the plan year.

To kick off the testing process, Prudential will send you an email prior to the end of your plan year as a reminder that it is time to do your plan's testing. The email will include the timeline specific to your plan and a link to our website’s Compliance Testing tab, where you can either:

• Start the testing process for the year, or• Let us know that you do not want us to do your plan’s compliance testing.

Use this guide to ensure data is submitted accurately and in the required format. First Quarter Testing: If accurate testing information is submitted by *January 31, Prudential will process

any ADP/ACP corrective distributions (adjusted for earnings or losses) by the 2 ½ month deadline.

*For non-calendar plan years, if your plan historically fails ADP/ACP testing, the deadline to remit testing informationis one month following plan year end.

Any corrective distributions to remedy a failed ADP or ACP test that are processed after the 2 ½ month deadline** will result in a 10% excise tax for which the Employer is responsible. However, it is permissible to refund ADP excess contributions or ACP excess aggregate contributions to correct a failed test after the 2 ½ month deadline as long as corrective distributions are made within twelve months after the end of the plan year being tested.

** Certain plans may have an Eligible Automatic Contribution Arrangement (EACA) provision that allows excesses to be processed up to 6 months without incurring excise tax.


What’s New

• AllocationsTo improve your testing and allocation experience, we will be utilizing one centralized email box. All testing andallocation emails will be sent from the [email protected] email box. If Prudentialprepared an allocation last year, you will have received a communication in November to confirm your allocationneeds. If you have questions or need to request an allocation, please reach out to your ClientService/Relationship Manager for more information.

First Quarter Testing: If requesting that Prudential prepare an allocation calculation(s), accurate testinginformation must be submitted by January 15, to guarantee that Prudential will process any ADP/ACP

corrective distributions (adjusted for earnings or losses) by the 2 ½ month deadline.

Reminders • Data Submission

We suggest you begin gathering and validating testing information well in advance of the deadline to avoiddelays caused by high volumes of submissions near the end of January.

If data is not accurate and a revised file is necessary, additional fees may be incurred. If you submit revised data after January 31, Prudential may not be able to remove excess

ADP/ACP contributions by the 2 ½ month deadline. Data must be remitted no later than August 31 (8 months following year-end) in order for Prudential

to complete testing and any necessary corrections to occur prior to year-end. Prudential will not beresponsible for past due testing.

• Screen ResolutionYou may need to change to the standard resolution for websites (1024x768 is not recommended).

Please note: The information you provide directly affects the results of your tests. Prudential has no responsibility for consequences resulting from incorrect data. In addition, the data provided for compliance testing purposes does not automatically update Prudential’s recordkeeping system. Any recordkeeping updates must be submitted via normal business process.


• Compatibility View/Setting You may need to make the following changes to your Internet Explorer to allow all options to be reflected:

Compatibility View. Click “Tools”, and then make sure “Compatibility View” is not checked. The

internet page will refresh to update your view. Incorrect: Correct:

Compatibility View Setting. Click “Tools”, then “Compatibility View Settings.” Be sure the first two

boxes (“Include updated website lists from Microsoft” and “Display intranet sites in Compatibility View”) are not checked.

• Email notifications You will be sent emails when: Your data has finished importing and is available for you to view. Your data has been requested and is available for you to view. An export file has been requested and is available for you to view.

• Emails from PruRetirement eDocs If you have any trouble viewing these emails, we recommend that you contact your technology experts to check your computer’s settings.


Quick Reference To Start: Log on to the Sponsor Center sponsorcenter.prudential.com. Click on the ‘Manage Plan’ button, click on ‘Plan Compliance’ in the Administration column, and then click on the tab marked ‘Compliance Testing’. Answer the question indicating your preference for Prudential to complete your testing and choose “Save”. Proceed through the following sections:

1. Plan Specifications

• Check the box to acknowledge. • Click “Submit”.

2. Compliance Testing Questionnaire • Answer all questions. • Click the box to acknowledge. • Click “Submit.”

3. Testing Data • Input date range for available data:

o Data can only be requested after your plan year ends. o Data request will take an hour or so to complete.

• Prudential will notify you via email once your data is available for viewing. Close your browser while this data is being compiled.

• Compare totals against your annual reports. Import accurate, annual data and then resolve errors. If multiple updates are needed, it’s recommended you follow the How to Update Multiple Records Off-line process.

• Type “Failed” into the Validation field to resolve all participants in a “Failed” status. • Click “Plan Errors” and complete any additional actions. • Review the Plan Sponsor Testing Checklist. • Click “Submit” to provide data to Prudential. Provide your email address for your confirmation email.

4. Testing Results • Review testing results. • Download and save files for future reference.

5. Corrective Distributions • If plan fails, corrective action may be necessary. • Review correctives and select the box to acknowledge and click “Submit”. • Questions? Send an email to [email protected] and your specialist will be in

touch.

http://www.online.prudential.com/sponsorcenter.prudential.com

mailto:[email protected]


Compliance Testing Web Walk-Through Getting started: Already registered? New User? Questions?

Enter your User ID and password Contact your Relationship Manager for access at 1-800-840-5452 Contact your Compliance Testing Specialist at [email protected]


Compliance Testing

The following pages explain the Compliance Testing tab section of our website in detail and the steps to complete nondiscrimination testing for your plan. As you move through the Compliance Testing tabs, you will be prompted to either answer questions or input corrected participant data.

• Click on the ‘Manage Plan’ button, click on ‘Plan Compliance’ in the Administration column, and then click on the tab marked ‘Compliance Testing’. Click “Plan Year Testing.” (You will see the current year’s testing information and prior and mid-year information, if applicable.)

• Answer the question(s) and click “Save” to move to Step #1.


Plan Specifications This page is informational only. Prudential will use the plan document provisions in effect on the last day of the plan year for compliance testing purposes.

To move to the next step:

• Check the acknowledge box. • Click “Submit”.


Testing Questionnaire

• Our questionnaire will be used to identify additional information that may be necessary for testing purposes.

• Answer all questions. Any items left unanswered will be assumed to be No/Not Applicable.

• Note: When updating the data file make sure the necessary indicators are included per your questionnaire responses.

• e.g., if you indicate “officers” on your questionnaire, at least one officer must be identified in the data submission.

• If indicators are not in line with questionnaire responses, a Plan Level Error message will appear. Make sure to correct the error. Note: The Plan Level Error will remain even after corrected.

• Once all questions are answered, check the “I acknowledge...” box.

• Click “Submit” to move forward or click “Save & Continue” only if you want to complete it later.

• If Mergers & Acquisitions or Controlled Group with multiple plans, not at Prudential, is indicated, complete the worksheet(s) on the following pages and email to [email protected].

mailto:[email protected]


Controlled Group Worksheet - Coverage Testing Information for Non-Prudential Plans

Employees who meet IRS Statutory Age and Service Requirements (Age 21, One Year of Service, Semi-Annual Entry)

401(k) Pretax & Roth

401(m) After-tax and

Match

401(a) Nonelective

Total Number of Employees (Non-Prudential Plans): Excludable employees: (Total of 1, 2, 3 and 4 below)

(1) Minimum age and/or years of service not met

(2) Collectively bargained employees(3) Non-Resident aliens(4) Terminated employees that worked < 500 hours N/A

(c) Non-Excludable Employees: (a) minus (b)(1) of Non-Excludable Employees who are HCEs

(Did not meet Age 21, One Year of Service, Semi-Annual Entry)

N/A

Controlled Group Information – HCE/Key Information

A. If the plan uses the Top Paid Group for Highly Compensated Employee (HCE) determination, did more than 20% ofthe entire controlled group population earn over the HCE threshold? Yes No

If yes, provide the Top Paid 20% threshold to be used to determine HCEs: $_________________

B. Were there more than 50 Officers within the Controlled Group? Yes No

If yes, provide the compensation threshold to be used to determine Officers: $_________________

Employees who DO NOT meet IRS Statutory Age and Service Requirements

(a)(b)

Total Number of Employees (Non-Prudential Plans): Excludable employees: (Total of 1, 2, 3 and 4 below)

(1) Minimum age and/or years of service not met

(2) Collectively bargained employees(3) Non-Resident aliens(4) Terminated employees that worked < 500 hours

(c) Non-Excludable Employees: (a) minus (b)

(a)(b)

(1) of Non-Excludable Employees who are HCEs


Mergers & Acquisitions Worksheet The IRS has provided little guidance on how to determine Highly Compensated Employees (HCEs) and perform the ADP/ACP testing. As such, we require the below information and direction.

1.) Provide a summary of the activity that occurred during the plan year:

2.) Identify whether it was a stock or asset acquisition:

Stock = Acquiring company purchases the stock (i.e. ownership) of the acquired organization. This includes employee’s assets and liabilities. Typically, with a Stock Acquisition the following logic would apply: No distributable event occurred (i.e. employees could not take a withdrawal). Original dates of hire from the acquired organization would be used. HCEs would be determined based on prior year compensation and ownership from the acquired

organization. Prudential should apply the above logic for testing purposes, or Describe the logic to be used:

Additional Data Requirements: Prior year compensation, ownership, and compensation prior to the acquisition (if not already included) will be needed so that we may determine HCEs for the current and following year. This information may be submitted via an Excel file and must include social security number.

Asset = Acquiring company is purchasing only selected assets and the corresponding liabilities of the acquired organization. Typically, with an Asset Acquisition the following logic would apply:

Distributable event occurred (i.e. employees could take a withdrawal). Acquisition date would be used for the date of hire for testing purposes, even if service was credited

for vesting. Acquired employees would not be considered HCEs as there is no relationship between the seller

and buyer. Prudential should apply the above logic for testing purposes, or Describe the logic to be used:

3.) Were any Defined Contributions plans acquired as the result of the acquisition? No Yes, list: ___________________________________________________________________ If Yes, please indicate if the acquired plan(s) terminated or will continue to be maintained:

Terminated __ Short plan year testing was completed from the first day of the plan year to the date of

acquisition for the terminated plan. __ Prudential should aggregate both plans for testing purposes.

Active


Testing Data To begin the data gathering and review process, input your testing plan year as the date range. If you remitted incorrect check date information on your payroll files/contribution files, you will need to correct contributions on your testing data file, prior to submission. Please do not request data until your final payroll has processed and contributions have posted to participant accounts.

o Click “Please select a date range to begin”: o Enter the testing year (do not adjust for actual trade dates):

o From = 01/01/20xx o To = 12/31/20xx

o Click “Submit” and you will be prompted to validate your email address as an email notification will be sent once the data is available for you to view.


o Once your data is available to view, log back into the Sponsor Center and click on the tab labeled ‘TestingData’.

The data will contain demographic and contribution data (and if you send payroll compensation data, compensation data as well) we received, applicable to the date range. Note: If you remit compensation on a payroll basis, compensation reflected is from the original submission. If you had manual adjustments during the plan year, STOP and check that the totals from this data match to your year-end totals.

If the totals do not match, you will need to import accurate testing data. To import accurate testing data, you may wish to export the current data as a starting point, or import a new file based on our standard file format.

o Export Data: Click “Export Data” and then “Submit” to create the file. You will be prompted to validate youremail address as an email notification will be sent once the data is available. You will experience a waitwhile the file is being exported depending on network activity.

o To retrieve the export file, click on “My Exports”.


o Open the Data File and save it to your files. Make all necessary revisions to the downloaded file (the Error File provides a listing of errors that need to be corrected for each participant).

o Once you make all the updates in the data file, you will need to re-import your file. (Please note: the SSN’s will need to be formatted to include dashes before importing. For a full listing of formatting requirements please review the Testing Data Format Requirements section.)

o Import Data: Once your data file is ready and you have completed the Plan Sponsor Data Review Checklist, click “Import Data”.

o A pop-up box will display that gives you the option when importing to:

Use Prudential’s Contributions: Upon import, the contributions listed on your file will be overlaid with the contributions Prudential has on file for the date range you selected.

Overlay data with what is on your file: Use the contributions you provided on your file.

o Select your option for contributions, then click Browse and select your file. o Next, validate your email address as an email notification will be sent once the import is complete. o Check off “Create error file”, then click “Submit”.


To assist in validating your testing data, our compliance testing module will perform a variety of data checks to identify inconsistent and missing data. o Plan Level Errors: A pop-up may appear informing you of the additional required information that is needed

based on your responses from the Compliance Testing Questionnaire (questions one, two, and five). Otherwise you can click on the link labeled ‘Plan Errors’. You will need to fix each Plan Error. These errors will be present until you import a new data file, or the data is submitted.

o Participant Level Errors: A validation will appear on each employee record. Any records indicated as “Failed” require your review and resolution. When you click on a failed record, you will see the participant level data edit(s) that caused the record to fail.


o If there are no errors:

Proceed with submitting your data by clicking the Submit” button (Submit will only become available when all participants have “Passed” validation). After clicking “Submit,” you will be prompted for your email address so we can inform you if the submission was successful.

o If your submission was successful, your data step will be reflected as “Submitted” instead of “In

Progress”. Congratulations! Prudential will now start compliance testing. We may need to contact you for additional items based on your responses to the questionnaire items before testing can be completed. This generally occurs within two weeks of data submission. Results are generally complete within seven weeks from receipt of all required information. We will send you an email with a link to notify you when the results are posted on the website.

o If there are errors:

We recommend filtering for failed records to determine how many participants will require updates. Once you have this information, you may wish to either update individual records directly on-line or use the Error Report that was created to make updates directly to the file you imported and then re-import.

o To filter the failed records: Type the word ‘failed’ into the Validation field. To remove this filter, click on ‘Reset Filter’.


o Update individual records online: o Click the pencil icon to expand the employee records and review each “Failed” record.

o Make the necessary updates to employee record on this screen. When the employee record is

saved, the web page will revert to the Testing Data tab and the page will refresh. The employee record will now reflect a passing status.

o Duplicate Record Errors? See the Duplicate Record Errors detailed instructions. o Continue until all “Failed” records are in a “Passed” status.

o Update multiple records off-line:

o Click on “My Exports” and open the Error.xls report that generated when you imported your data file. If you have not yet imported data or you made updates to the data that you wish to maintain, use the Export Data option, then follow the Import Data instructions to import your revised filed.

• How to scroll to see additional data fields:

o Hover over the arrows to scroll within the web data to view additional columns.


Duplicate Record Errors: If you have a failed record due to the participant being a duplicate, review both records that exist for the participant in order to determine if they need to be consolidated or if one is simply blank and can be deleted.

o To locate the duplicates, do a search/filter by the last name. For example, if the duplicate is for DOE, JOHN you would enter DOE in the Last Name field and hit enter, which would then filter for the multiple records so that you can perform your review.

o If it’s determined that one record contains no compensation or contributions, you can delete that record by selecting the checkbox to the left of the record and selecting the option to “Delete Selected”.

o If it’s determined that both records contain amounts and need to be consolidated, delete one of the duplicate records and then manually update the remaining record with the consolidated amounts. Keep in mind, you will need to delete one of the duplicate records first, because the system won’t allow you to make any changes until the duplicate error is resolved.


Testing Data Format Requirements This section of the Compliance Testing Guide provides how your plan’s data must be formatted.

1. For Prudential to complete the necessary compliance testing for your plan, you will need to submit the employee data file in the standard format listed below. Please work with your payroll provider to have your file formatted as specified below.

2. Only Excel, version 16 (2016) or lower spreadsheets will be accepted. 3. Who should be included?

Generally, the file must include all employees that worked at least 1 hour during the testing period. Exceptions: excluded union, excluded non-resident aliens, employees who did not meet minimum age & service requirements.

4. What is included in compensation? Refer to your plan document/adoption agreement for the plan’s elected definition and the Compensation Glossary.

Data Specifications ‐ (Standard File Format) The data specifications provide instruction for setting up the standard file. A template is also available under Quick Links (Compliance Testing Data Template). ** Item is required for all plans. All other items are required if applicable to the plan. Prudential will not begin the testing process until all required information is provided.

Standard File Format

Spreadsheet Column Field Name & Comments

A **Social Security Number – Number must be in 999-99-9999 format.

B Subplan Number - The six-digit subplan number associated with the Plan ID; or a unique identification of companies in a controlled group or multiple employer situations.

C **Employee Name - Format must be Last Name, First Name.

D **Birth Date – Enter the birth date in a MM/DD/CCYY format (e.g., 01/15/1949). This date is needed for all employees, not just those employees participating in the plan.

https://www.prudential.com/wps/wcm/connect/f669b9eb-678d-43ce-b304-b1fdfad92190/Compensation_Glossary_Definitions.pdf?MOD=AJPERES&id=1541615679723


Standard File Format Spreadsheet

Column Field Name & Comments

E **Hire Date – Enter the original hire date (use column G for rehire dates) in a MM/DD/CCYY format (e.g., 09/09/1974). This date is needed for all employees, not just those employees participating in the plan.

F **Termination Date – This is the employee's termination date. Enter the termination date even if the employee did not participate in the plan in MM/DD/CCYY format (e.g., 04/01/2004) or leave blank if not applicable.

G Rehire Date - Enter the rehire date in a MM/DD/CCYY format. The date of termination must also be provided with any rehire date (e.g., 08/24/2007).

H Hours – Hours worked during the plan year must be in a number format, less than 3000, without decimals (Note: if decimals are provided, figures will be automatically rounded). If the plan has an hour’s requirement for eligibility or allocations, this field must be completed.

I Family Code– Any person who owns stock in the company and has family members (Spouse, Child, Grandchild or Parent). Each Family group needs to be identified with the same number value (i.e. John Smith and Laura Smith coded with a “1” and Robert Jones, Marcia Jones and Paula Jones coded with a “2”.

J Officer Indicator - Any company officer earning more than the allowable limit for the year being tested. If the test covers only part of a plan year, the limit should be prorated. This information is needed only if Prudential is determining Key Employees and performing your Top Heavy Test. This field is not required for ADP/ACP testing. Valid values are "Y" or "N". N/A for 403(b) Plans.

K Highly Compensated Employee Indicator (HCE Indicator) - If Prudential is determining HCEs, leave this field blank. If you are determining who your HCEs are for the plan year being tested, enter values "Y" or "N".

L Exclusion Indicator - The plan may exclude specific employee job classes from becoming eligible. Use "Y" to indicate that the employee is excluded under the job class exclusions and "N" to indicate that an employee is not excluded. If the plan does not exclude any specific employee job classes enter "N" for all employees. This field should not to be used to identify whether participants met age and/or service requirements.

M Ownership Percentage - Any person employed by the company who owns, directly or indirectly, any employer stock, or other ownership interest, at any time during determination year, enter the actual percentage owned. Percentages are limited to a two-decimal number, otherwise enter zeros (ex: Enter 10.50% as 10.50).

N Collectively Bargained Group # – This information is used in performing the ADP/ACP test. If the plan has collectively bargained employees, enter a numeric union identification code (e.g. 1 for each employee of Union A; 2 for each employee of Union B, etc.). Otherwise enter zeros.

O Union Indicator– Enter Y if employee has collectively bargained for plan benefits, otherwise enter “N”. This information is used in performing the ADP/ACP test.



P Non-Resident Alien Indicator - Enter Y if Non-Resident Alien with no U. S. source earned income. Valid values are "Y" or "N", otherwise leave blank.

Q **Compensation for Determining HCEs (HCE/415 Compensation) – This compensation will be used by Prudential for various testing purposes (e.g. to determine the plan's HCEs for the upcoming testing year, 415 Annual Additions, 414(s) Compensation Testing, Top Heavy Minimum, etc.). This field represents the current testing year earnings per the plan's definition of HCE compensation.

R **ADP/ACP Compensation – This compensation will be used in the ADP/ACP test to calculate the percentages associated with those tests. Per your plan document, enter this compensation amount for every employee who received compensation for the plan year being tested.

S Pre-Tax Compensation - This compensation will be used to verify that pre-tax contribution percentages did not exceed plan limits. Enter zeros if not applicable.

T Matching Compensation – This compensation will be used to verify that matching contribution percentages did not exceed plan limits. Enter zeros if not applicable.

U Other Compensation – This compensation will be used to verify that contribution percentages other than matching contributions did not exceed plan limits. Enter zeros if not applicable.

V Post Tax Compensation – This compensation will be used to verify that post-tax contribution percentages did not exceed plan limits. Enter zeros if not applicable.

W Pre-Tax Contribution – The dollar amount the employee has contributed on a pre-tax basis during the plan year. If we have been recordkeeping the plan for the entire plan year and you want to use contributions from our recordkeeping system, leave blank. NOTE: If providing pre-tax contributions, include any catch-up contributions in this amount.

X Post-Tax Contribution – The dollar amount the employee has contributed on a post-tax basis during the plan year. If we have been recordkeeping the plan for the entire plan year and you want to use contributions from our recordkeeping system, leave blank.

Y Match Contribution – The dollar amount of Pre-tax/Roth related matching contributions the employee has received during the plan year. If we have been recordkeeping the plan for the entire plan year and you want to use contributions from our recordkeeping system, leave blank.

Z Post-Tax Match Contribution – The dollar amount the employee received as a post-tax match during the plan year. If we have been recordkeeping the plan for the entire plan year and you want to use contributions from our recordkeeping system, leave blank.

AA Non-Match Contribution – This field is only used in 415 Annual Additions and Minimum Coverage testing. If we have been recordkeeping the plan for the entire plan year and you want to use contributions from our recordkeeping system, leave blank.

AB Roth Contribution – The dollar amount of Roth contributions the employee has contributed during the plan year. If we have been recordkeeping the plan for the entire plan year and you want to use contributions from our recordkeeping system, leave blank.



AC Other Contribution – This contribution was made to another DC plan, where Prudential was not the record keeper. Enter the amount for the plan year or zeros if not applicable.

AD Non-recurring Comp (mid-year only) - This compensation will only be used in the mid-year ADP/ACP test to calculate the percentages associated with those tests. This compensation will not be projected out for the entire year.

Step 3: Plan Sponsor Data Review Checklist Plan Sponsor is responsible for performing the below steps:

Submission of complete and accurate data for testing purposes

Population: Confirm the entire testing population was provided. This is generally all employees who perform at least one hour of service within the plan year. Certain employees are excludable from testing and do not need to be included, such as excluded union, excluded non-resident aliens and employees who did not meet minimum age & service, if allowable per the plan document.

Compensation: Confirm compensation provided is correct per the definition elected in the plan document. HCE/415 compensation must be provided. Refer to the Compensation Glossary for help.

Note: If Prudential performs any allocation calculations or the plan requires 414(s) Compensation testing, you must provide eligible compensation under Pretax, Match, Other, or Post-Tax Compensation columns, as needed (this includes “participating compensation/compensation earned from the date the participant became eligible). Otherwise, if eligible compensation is not provided under Pretax, Match, Other, or Post-Tax Compensation columns as needed, HCE/415 compensation will be used to identify plan limit overages.

Contributions: Confirm contributions tie back to your payroll records for the plan year. Employer contributions applicable to the plan year should be included, even if not yet funded. If discretionary contributions are not included in the data file, it will be assumed no discretionary contributions will be allocated for the plan year. Note: If employer contributions are not included in the data you submit but subsequently funded, you will be responsible to reach out to your testing specialist to determine if additional testing is needed, additional fees may apply.

Trailing Pay: Review for employees who terminated prior to the start of the year but have compensation or contributions reported for the plan year being tested. Typically, severance pay would not be included in testing compensation and those employees should be removed from the data file (review your plan document elections to verify). Employees remaining in the file will be assumed to have trailing pay (i.e. last pay check) and will be included in testing.

Indicators: Confirm all Yes/No indicators (ex: Officer) and additional information (ex: Ownership) were included on the data file based on questionnaire responses.

Missing Info: Confirm there are no missing or invalid dates, indicators, compensation or contribution amounts.

Hours: If the plan uses hours of service for eligibility or allocation purposes, confirm hours were provided for all employees. Note: If hours are not provided, we will assume 1000 hours for the plan year.



Testing Results and Corrective Distributions When testing results are available, we will send you an email with a link to the Testing Results tab.

• Click on each “Test/Limit” to download the files for your records. Two years of testing results will be available on the Sponsor Center. A fee will be charged if you request a copy of test results that are greater than two years.

• Review the “Additional Information” for the IRS corrective methods for the failed test. • Review the “Result” column and take action on each “Failed” and “Review” item. For ADP, ACP and 402(g)

failures*, the “Further Steps” column has a link to “See Corrective Distributions” where you can take action. You will have to option to:

• Process all corrective distributions on date indicated • Process all corrective distributions now

If you select one of the two options above, checks will be processed and sent directly to employees by Prudential. If special arrangements need to be made, please contact your Compliance Testing Specialist to make those arrangements before clicking “Submit.”

• Do not process distributions (Enter an explanation and call your Compliance Testing Specialist) As an alternative to processing refunds, you may be able to take other corrective measures, such as making an additional qualified contribution to satisfy the failure. Click on the “Summary of corrective alternatives” link.

• Once you select your option, read and check the “I understand” box, then click “Submit”.

Return Authorization Forms

Prudential will perform the following annual operational checks based on the data provided: • Maximum Match Limit: Prudential will apply the plan’s maximum match formula to determine if any employees

exceeded the limit. For your review, Prudential will also identify participants who did not receive, but may be due match, as well as participants who received match, but may not have been eligible.

• Pretax & Roth Plan Limit: Prudential will apply the plan limit maximum(s) to determine if any employees exceededthe plan limit after re-characterization of catch-up, if applicable. For your review, Prudential will also identify participants who had pretax/Roth contributions, but may not have been eligible.

• After-tax Plan Limit: Prudential will apply the plan limit maximum(s) to determine if any employees exceeded theplan limit. For your review, Prudential will also identify participants who had after-tax contributions, but may not have been eligible.

• Nonelective Eligibility: For your review, Prudential will identify participants who did not receive, but may be duecontributions, as well as participants who received contributions, but may not have been eligible.

If potential operational failures were identified during the testing process, Prudential will provide detailed information on corrective measures via the IRS’ Employee Plans Compliance Resolution System. The information will contain an authorization form for your direction and signature. You will be responsible for confirming an error occurred (e.g., a participant exceeded a plan limit or was not eligible to receive that type of contribution), determining how to correct the issue and providing direction to Prudential to correct it. When the authorization form is received, the corrections will be submitted for processing.

Question and Answers Q1. WHAT IS THE DIFFERENCE BETWEEN UNION EMPLOYEES AND COLLECTIVELY

BARGAINED UNION EMPLOYEES?

A. Correctly categorizing “collectively bargained employees” is important because these employees areconsidered separately for nondiscrimination testing purposes. Plans or a portion of a plan coveringcollectively bargained employees are excluded when performing certain testing requirements.A “collectively bargained employee” is an employee covered by a collective bargaining agreement betweenbona fide employee representatives and one or more employers, provided there is evidence that retirementbenefits were the subject of good faith bargaining. Such an employee is “collectively bargained” even ifhe/she does not benefit under any plan of the employer.An employee who is a union member is not a collectively bargained employee for purposes of a qualifiedretirement plan if that employee is covered under a collective bargaining agreement with the employer, butretirement benefits were not discussed as part of good faith bargaining.

Q2. WHO IS AN OFFICER?

A. For purposes of nondiscrimination testing, an "officer" generally means an administrative executive who is inregular and continuous service, not a nominal officer whose administrative duties are limited to a specialand single transaction. An employee, who has the title of an officer but not the authority, is not consideredan officer. Similarly, an employee with the authority of an officer is treated as an officer when performingnondiscrimination testing, regardless of whether that employee has the title of an officer.The maximum number of officers allowed to be designated as key employees for top heavy testing is asfollows:

Total Number of Employees Maximum Number of Officers

Less than 30 3

30 to 500 10% of employees

500 or more 50

When determining the maximum number of officers, the total number of employees includes all employees in the controlled group of corporations, group under common control or affiliated service group of the employer that sponsors the plan. However, the total number of employees excludes an employee who meets any of the following criteria (see IRC Section 416(i)(1)(A) and IRC Section 414(q)(5) for more details):

1. Is less than age 212. Has not completed 6 months of service3. Normally works less than 17 ½ hours per week4. Normally does not work more than 6 months in a year5. Most employees covered by a collective bargaining agreement

Q3. WHO IS A LEASED EMPLOYEE?

A. A leased employee is any individual who provides services to an organization (the recipient) under anarrangement between the recipient and a leasing organization in a capacity other than as an employee andmeets the following requirements:

1. Services of the individual were provided pursuant to one or more agreements between therecipient and the leasing organization.

2. The individual has performed services for the recipient on a substantially full-time basis for a periodof at least one year; and

3. The services are under the primary direction or control by the recipient.If the individual meets the requirements above, he/she is considered an employee of the recipient and must be included in the testing data unless: The leased employees do not constitute more than 20% of the recipients non-highly compensated workforce and each leased employee is covered by a qualified money purchase pension plan maintained by the leasing organization that provides the following:

• A nonintegrated employer contribution of at least 10% of compensation.

• Full and immediate vesting.

• Immediate participation for all employees hired by the leasing organization.

Please refer to IRS publication 560, which can be accessed at www.irs.gov, for additional information about the treatment of leased employees in a qualified retirement plan.

Q4. WHO IS AN INDEPENDENT CONTRACTOR?

A. An independent contractor is an individual who performs services for a company in a non-employeecapacity. An employer-sponsored retirement plan can only cover its employees. An independent contractorperforming services for that company cannot participate in the plan. In addition, an independent contractoris defined differently than a leased employee (see below). Please refer to IRS Publication 15-A, which canbe accessed at the IRS’ web site (www.irs.gov) for additional information about classifying workers as anemployee or independent contractor. True Independent Contractors should be removed from your data file.

Q5. WHO IS A NON-RESIDENT ALIEN?

A. Certain employees who are non-resident aliens are treated as excludable when performingnondiscrimination testing. For nondiscrimination testing purposes, an excludable non-resident alien is anindividual who is neither a citizen nor a resident of the U.S. who receives no earned income from theemployer that constitutes income from sources within the United States. IRS Publication 519 contains

http://www.irs.gov/

additional information with respect to identifying non-resident aliens. This publication is available on the IRS’ web site (www.irs.gov).

Q6. HOW DO EMPLOYEES WHO RESIDE IN PUERTO RICO AFFECT NONDISCRIMINATION TESTING?

A. Individuals residing in Puerto Rico or other US possessions, who are considered US residents or citizens,do not meet the criteria of a non-resident alien. These employees must be included in the minimumcoverage test and any other applicable nondiscrimination tests. Additional testing may be necessary forplans also qualified under Puerto Rico regulations. Please note, the salary deferral limit test will be based onthe deferral limit in effect for the year. If any participant had a hardship withdrawal, the Sponsor would needto verify their individual limit was not exceeded.

Q7. HOW DOES EXCLUDING CATEGORIES OF EMPLOYEES AFFECT NONDISCRIMINATION TESTING?

A. The IRS prescribes several categories of employees who may be excluded from plan participation withoutaffecting minimum coverage results. These categories, including non-resident aliens and collectivelybargained employees, are referred to as “excludable” employees. Additional categories for 403(b) plansinclude individuals eligible to defer under another plan of the employer, work study students, and employeesnormally scheduled to work less than 20 hours per week.Any employee who is not covered in a category specifically described by the IRS as excludable is referredto as a “nonexcludable” employee. An employer may choose to exclude a nondiscriminatory class orcategory of nonexcludable employees from participating in the plan by including a specific exclusion in theplan document. Doing this, however, may cause the plan to fail the minimum coverage test because theemployer is no longer covering 100% of nonexcludable employees under the plan.Note: 403(b) plans are not required to perform the minimum coverage test on the elective deferral (pre-taxand/or Roth 403(b)) portion of the plan (eligibility is universally available).

Q8. WHAT IS USERRA?

A. The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) contains provisionsapplicable to plan participants who perform military service. Some actions required under these provisions(e.g., make-up contributions) may require special attention as part of the nondiscrimination testing process.Further details about USERRA requirements related to qualified plan administration can be found infrequently asked questions published by the IRS on its web site at http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-Regarding-USERRA-and-SSCRA.

Q9. HOW IS OWNERSHIP INFORMATION USED? A. Ownership information is used to determine Highly Compensated Employees (HCEs) as well as Key

Employees:

http://www.irs.gov/Retirement-

HCE • Was a “5% Owner” at any time during the plan year or preceding plan year, or• For the preceding plan year:

a. had compensation in excess of $120,000 (indexed for 2018) andb. if elected by the employer, was in the top 20% of employees when ranked by order of highest

compensation for the preceding plan year.

Key Employee A Key Employee is an employee who meets any of the following criteria in the plan year. Identification of Key Employees is necessary for Top Heavy testing.

• 5% Owner – an employee who owns more than 5% of the employer or related employer as definedabove.

• 1% owner - an employee who owns more than 1% of the employer or related employer and hascompensation in excess of $150,000.

• Officer – generally, an employee who has authority and performs duties as an administrativeexecutive in accordance with Treas. Reg. Section 1.416-1, T-13, and has compensation in excess of$180,000 (for 2019).

Q10. WHAT ARE THE FAMILY ATTRIBUTION RULES WITH RESPECT TO HCE AND KEY EMPLOYEE DETERMINATION?

A. When determining whether an employee meets the ownership requirements to be considered a HCE or KeyEmployee, the constructive ownership rules under Internal Revenue Code Section 318 must be applied. Thesection 318 attribution rules are written in terms of stock ownership, so where the organization is not acorporation, consider “profit or ownership interest” rather than stock ownership.Under the constructive ownership rules, stock ownership is attributed to the following employees:

• Spouse (unless legally separated under a divorce decree or a decree providing for separatemaintenance);

• Children (including those legally adopted)• Grandparent (no attribution from grandparent to grandchild)• Parents

The attribution rules apply even if a family member is not an employee of the company. However, an individual must be an employee to be considered a HCE or Key employee. Example #1:

Employee % Direct Owner % Constructive Owner % Total Ownership

John 6% 3% 9% Mike (John’s son) 3% 6% 9%

Jane (John’s daughter) 0% 6% 6%

Mike and Jane are deemed to own John’s shares of stock and would be considered HCEs if employed by the company. John is also deemed to own Mike’s shares of stock; however, Jane would not be deemed to own Mike’s shares of stock since attribution does not apply between siblings.

Example # 2:

Employee % Direct Owner % Constructive Owner % Total Ownership

Jim 4% 3% 7% Nancy (Jim’s wife) 3% 4% 7%

Jim is deemed to own Nancy’s shares, and Nancy is deemed to own Jim’s shares. Therefore, total ownership (directly and indirectly) for both Jim and Nancy is 7%, making them both HCEs. The constructive ownership rules are very complex. Prudential cannot provide legal advice and recommends that Plan Sponsors seek legal counsel in making determinations under these rules.

Q11. WHAT DATA SHOULD BE SENT TO PRUDENTIAL IF A MERGER, ACQUISITION OR SPIN- OFF OCCURS DURING THE PLAN YEAR?

A. If your company was involved in a merger, acquisition or spin-off during the plan year, this may have asubstantial impact to your plan’s nondiscrimination testing. It is important that you provide specific detailsabout the transaction to Prudential to ensure the nondiscrimination testing for the impacted year iscompleted appropriately. These details may include, but are not limited to:

• Type of transaction (stock or asset purchase or disposition),

• Effective date of transaction,

• Names and EINs of companies involved in transaction,

• Other DC plans terminated or merged because of the transaction, and

• Other DC plans maintained after the effective date of the transaction.The IRS has provided little guidance on how to determine HCEs and perform the ADP/ACP test in the year of a plan merger or spin-off. If your plan was involved in either type of transaction, you will need to provide us with instructions on how to perform these tests. Since every merger, acquisition or spin-off situation can vary, you may want to consult with your plan’s legal advisors to determine your options.

Q12. CAN A LIMIT BE PLACED ON THE AMOUNT A HCE CAN CONTRIBUTE TO THE PLAN?

A. Yes, if the plan document allows, a Plan Sponsor may administratively limit the amount of employee pre-taxor post-tax contributions made to the plan by a HCE. If the plan document does not specifically provide thePlan Administrator with the ability to administratively limit the HCEs’ employee pre-tax or post-taxcontributions, the plan may not be able to consider the imposed limit as a plan limit.

Q13. WHAT IS A CONTROLLED GROUP?

A. Employers related under the controlled group or affiliated service group rules are considered a singleemployer for qualified plan purposes. This means that all employees of the employer need to be consideredfor nondiscrimination testing purposes regardless of whether those employees participate in your plan.A controlled group is a related employer group. The types of controlled groups are:Parent /Subsidiary Relationship- parent company owns 80% or more of the voting stock or value of allclasses of stock with one or more entities.Brother/Sister Relationship- two or more entities are owned by the same five or fewer individuals and thesame five or fewer individuals own at least 80% of the voting stock or value of all classes of stock in theentities and common ownership equals more than 50%.Combined Group- there is a group of three or more corporations which: 1) Two or more corporations arepart of a parent/subsidiary and, 2) Two or more in that controlled group are part of a brother/sister; and 3)One corporation in the group is both the parent corporation and a parent/subsidiary controlled group andpart of a brother/sister, controlled group.

Affiliated service group- an affiliated service group is another type of related employer group. This type ofrelated employer group refers to two or more employers that have a service relationship and, potentially, anownership relationship. Affiliated service groups can fall into one of three categories: a-org groups, b-orggroups, and management groups.While the affiliated service group rules are written in terms of stock ownership, these rules may apply tounincorporated businesses as well. When considering unincorporated business, substitute “ownership” or“profit interest” for the term “stock.”The rules to determine affiliated service group status are very complex. If you believe the affiliated servicegroup rules may apply, please consult legal counsel to assist with making this determination.While the controlled group rules are written in terms of stock ownership, these rules may apply tounincorporated businesses as well. When considering unincorporated business, substitute “ownership” or“profit interest” for the term “stock.”The rules to determine controlled group status are very complex. If you believe the controlled group rulesmay apply, please consult legal counsel to assist with making this determination.Prudential will perform nondiscrimination testing only for the retirement plan for which it providesrecordkeeping services. Therefore, you will not be able to rely on these test results if the plan must beaggregated with another qualified plan for one or both plans to pass.

Q14. WHAT IS A "QUALIFIED SEPARATE LINES OF BUSINESS" (QSLOB)?

A. A 'Line of Business' (LOB) is a portion of an employer's total business. One LOB is distinguished andidentified from other LOBs based on the property and services each one provides to its customers. To meetthe 'Separate Lines of Business’ (SLOB) status, each LOB must meet four 'separateness' criteria:

1. Must be formally organized as a separate organizational unit or group of separate organizationalunits within the employer on every day of the testing year.

2. Must be a separate profit center or group of separate profit centers within the employer on everyday of the testing year.

3. Must have separate employee workforce.4. Must have separate management.

In addition to meeting the 'separateness' requirements, to be considered a Qualified Separate Line of Business, the following requirements must be met.

• The SLOB must have at least 50 employees on each day of the testing year who do not provideservices to any other LOB;

• The employer must notify the IRS that it is operating as a QSLOB for the calendar year via form5310-A; and

• The SLOB must satisfy administrative scrutiny under one of six safe harbor tests or by IRSdetermination.

The rules for determining QSLOB status are very complex. Please consult legal counsel to assist with making this determination. The minimum coverage requirements of 410(b) are applied separately to a QSLOB. To apply these requirements separately though, the plan must also satisfy a “gateway” test to demonstrate that the plan covers a nondiscriminatory group of employees on an employer-wide basis.

Q15. PLEASE EXPLAIN THE THREE-YEAR TESTING CYCLE AND THE 'SNAPSHOT' METHOD AS IT RELATES TO MINIMUM COVERAGE TESTING.

A. A plan sponsor may demonstrate compliance with the minimum coverage testing based on its workforce ona single day during the plan year. This is referred to as a 'snapshot day'. The 'snapshot day' chosen mustreasonably represent the employer's workforce and the plan's coverage throughout the plan year. Thetesting data only includes individuals employed on the 'snapshot' day.Another method plan sponsors may use is the three-year testing cycle for minimum coverage testing. If aplan meets the requirements of minimum coverage testing using either year-end data or snapshot data, itmay rely on those results for the following two plan years if there are no significant changes to the planprovisions, the plan sponsor's workforce, or its compensation practices. The determination as to whether achange is significant depends upon the relative margin by which the plan passed the coverage requirementsin the last year in which the plan was tested and the likelihood that the change would cause the plan to failcoverage testing.

Q16. WHAT IS A TOP-HEAVY PLAN?

A. A plan is considered top-heavy for any plan year if, as of the "determination date," the sum of the accountbalances of participants who are key employees exceeds 60% of the sum of the account balances for allemployees under the plan. A plan may also be a top-heavy plan if it is part of a top-heavy group.The "determination date" is either the last day of the preceding plan year; OR, in the case of a new plan, thelast day of the first plan year.

Q17 WHAT IS A REQUIRED AGGREGATION GROUP?

A. All plans of the employer in which a Key Employee participates at any time during the determination period;or any other of the employer’s plans that are combined with any plan in which a Key Employee participatesto meet the IRS coverage and general nondiscrimination requirements.

• If you maintain a Defined Benefit (DB) Plan, please seek guidance from your actuary or benefitsconsultant to determine the top-heavy rules specific to this type of plan.

403(b) plans are not subject to top heavy requirements.

Q18. WHICH EMPLOYEES ARE INCLUDED IN THE TOP 20% CALCULATION? A. The top 20% calculation is based on all employees of the employer. This means if the company is a

member of a controlled group, all the employees of the controlled group must be used.When making the determination of the number of employees in the top-paid group, the following employeesare excluded:a) employees who have not completed 6 months of service by the end of the year,b) employees who normally work less than 17 ½ hours per week during the year,c) employees who normally work 6 months or less during the year,d) employees who are not age 21 by the end of the year, ande) non-resident aliens with no US source of income.

Q19. WHAT ARE THE RULES FOR DETERMINING WHO MY HCES ARE? A. The plan document will specify the method to be used to determine HCEs using one of two methods:

Method 1: A HCE is anyone who meets one or more of the following:a) Was a “5% Owner” in the current determination year;b) Was a ”5% Owner” in the lookback year; or,c) Earned compensation in excess of $120,000 (indexed for 2018)

Method 2: A HCE is anyone who meets one or more of the following: a) Was a ”5% Owner” in the current determination year;b) Was a ”5% Owner” in the lookback year; Or,c) Earned compensation in excess of $120,000 (indexed for 2018) and was in the top 20% of all employeesranked by compensation in the lookback year.


Mid-Year Compliance Testing By performing a mid-year ADP/ACP test, you can determine if it is necessary to reduce the amount your Highly Compensated Employees are contributing and will give you the opportunity to take corrective measures prior to your plan year-end. Mid-Year testing is optional and not required by the IRS; however, if any of the following statements apply to your plan, it may be beneficial:

* Your ADP/ACP tests have failed in the past and you want to reduce/avoid refunds. * This is the first year that Prudential will be performing your plan’s year-end testing. * Your plan demographics or provisions have changed this year (i.e. a plan merger or a change in plan design occurred).

The projection method or point-in-time method will be used to perform the Mid-Year Test. If mid-year compensation includes items such as one-time bonuses or other non-recurring components, these items will need to be reported separately on the testing data submission for Prudential to be able to perform accurate mid-year testing. Additional fees apply to mid-year testing. PLEASE NOTE: If testing data and Compliance Testing Questionnaire are not received by 8 months

following the plan year end, Prudential will not honor mid-year testing requests.

To initiate Mid-Year testing, click on the ‘Manage Plan’ button, click on ‘Plan Compliance’ in the Administration column, and then click on the tab marked ‘Compliance Testing’. Click “Mid-Year Testing.”:

• Start the optional mid-year testing process for the year (you will be directed to the following steps: Review Plan Specifications; Complete Testing Questionnaire; and Submit Testing Data).

• If you do not wish to take advantage of interim testing, no further action is required.

Please note: The information you provide directly affects the results of your tests. Prudential has no responsibility for consequences resulting from incorrect data. In addition, the data provided for compliance testing purposes does not automatically update Prudential’s recordkeeping system. Any recordkeeping updates must be submitted via normal business process.

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