Overlapping Related Groups and Coverage Testing

[AbsolutelyOkayPossibly]

Lets say there are two controlled groups. Controlled group 1 contains employers A, B and C, and controlled group 2 contains D, E and F. In addition, employers B and E are an affiliated service group. Both controlled groups sponsor a retirement plan with each of its controlled group members. The two plans provide for different benefit arrangements, controlled group 1 is a profit sharing only plan, and controlled group 2 provides only deferrals and matching contributions.

I assume that when testing coverage for controlled group 1 would I need to consider employees of employer E in my analysis. If coverage fails without employer E for average benefits purposes, would I aggregate the entirety of both plans together or would I just include employer E employees into the controlled group 1's plan?

I'm ignoring coverage testing of controlled group 2 because I'm assuming the same procedure applied to controlled group 1 would apply to controlled group 2.

[EBECatty]

I think you'll find people taking both sides on the more general question of overlapping groups, with some saying E's affiliation with B would require A/B/C's testing to include E and all of its related entities, and with others saying you test A/B/C/E as one group and D/E/F/B as another. 

[RatherBeGolfing]

31 minutes ago, EBECatty said:

I think you'll find people taking both sides on the more general question of overlapping groups, with some saying E's affiliation with B would require A/B/C's testing to include E and all of its related entities, and with others saying you test A/B/C/E as one group and D/E/F/B as another. 

Correct.  We had a long discussion about this a few years ago, and there were plenty of folks on both sides.  To make it even more fun, there is support for both arguments in the Code.

I posed a question with a similar fact pattern to ASPPA annual's "ask the experts" panel a few years ago (knowing that two of the people on the panel had different opinions), and in the end the answer was that absent specific guidance, either one could be a reasonable approach if you stay consistent.