Employer A has a 401(k) Plan that Employer B adopted as a Participating Employer (controlled group). In January 2013, ownership of ER B changed and there was no longer a controlled group. (Two of the owners retained some ownership but not enough to keep it as a CG.) This, of course, was not communicated to us until now. The name and EIN of ER B remained the same. ER B had five eligible employees during 2013 and 2014. Only one was an HCE and he made deferrals along with one NHCE. All nondiscrimination testing was passed combining both ERs for those two years. For 2015, only one employee of ER B, the HCE, made deferrals. Therefore, having to test separately, would not allow the ADP test to pass. Plan uses current year testing.
Questions:
1. Referencing "Who's the Employer", it appears that the plan may be eligible for the grace period (allowing the plan to operate the same), which would have ended December 31, 2014. Is that correct? Then, as of January 1, 2015, the plan then becomes a multiple employer plan and testing would be done separately?
2. If the participation agreement is terminated as of the current date, are the participants of ER B eligible to get a distribution of their accounts? If so, I would assume the HCE of ER B would not be eligible to get a distribution since the ADP test would fail and corrective distribution would be required. Would the test be performed at the end of the plan year or at the end of the termination of the agreement?
Thanks in advance for any advice on this situation.
