Is it true that a plan must state its coverage testing method in the plan document?

In the context of qualified retirement plans, it is not a requirement for the plan document to explicitly state the coverage testing method. The coverage testing, which is designed to ensure that a plan does not disproportionately benefit highly compensated employees compared to non-highly compensated employees, is typically carried out through specific compliance testing procedures. However, these procedures may not need to be detailed within the document itself.

Plan sponsors usually refer to the IRS regulations and related guidance for the appropriate testing methods, such as the ratio percentage test or the average benefit test, but specifying which method will be used in the plan document is not mandated. This allows for greater flexibility in how the plan achieves compliance with nondiscrimination requirements without needing to modify the plan document every time the testing approach is revised or updated.

In summary, the correct assertion is that while coverage testing is an essential aspect of maintaining compliance for a 401(k) plan, the explicit mention of the coverage testing method in the plan document is not required according to IRS guidelines.