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DB plan established in 2017. Employee worked for employer 2007-2015. Employee rehired 9/1/18. Therefore, enters plan 9/1/18. Since employee won't have 1000 hours in 2018, is that employee treated as benefiting under the plan? If not, then is an 11(g) amendment required to bring in employee to meet 410(b) [currently, 4 HCE-1 excluded, and two NHCE-counting the rehire)? Here, 410(b) would be 50%/75%=67%. I don't see any relief from Reg. §410(b)-3. I don't think that an 11(g) amendment could be made to merely apply the 1-year holdout rule, which would make the rehire wait until one Year of Service has been met (which, then avoids the dilemma. Am I missing something here?

Controlled group: 2 employers with their own 401(k) plans. No Profit Sharing. 401(k) coverage for 2017 fails. Plan 1 is safe harbor match, covers only 1 HCE and a lot of NHCEs. Plan 2 is not safe harbor, has no match, no PS, but covers 5 HCE owners and 1 NHCE, prior-year tested. The plans fail ratio percent test (result is under 10%). The plans cannot be aggregated for coverage testing. Seem that plan 2 needs to open up coverage to some of the plan 1 NHCEs by providing QNECs to until enough NHCEs are above the safe harbor percent and then run ABT. That QNEC is based on the 2017 ADP for the NHCEs in plan 2. The problem is that the NHCE in plan 2 did not defer in 2017, so the NHCE ADP for 2017 for plan 2 is 0% and thus the QNEC is 0%. Therefore, is there a reasonable argument that no action is needed for plan 2 to pass coverage for 2017? Note: the NHCE ADP in 2016 was also zero.

I have a 403(b) with elective deferrals, discretionary matching and profit-sharing contributions. The plan meets the universal availability requirements while excluding student employees and employees who regularly work less than 20 hrs per week. Question is: are these employees also considered excludable for purposes of applying the coverage and discrimination tests. I haven't found specific guidance in the regulations as it relates to 403(b)s specifically. It would seem intuitively that these employees would also qualify as 'excludable' for coverage and discrimination testing purposes as for matching purposes they would never receive a match as a result of being excluded under UA rules. Welcome any thoughts.

FACTS: ABC is an S-Corp owned 100% by Mr. A ABC sponsors a Safe Harbor 401k (Cross Tested) Profit Sharing Plan: 2 HCEs are elig 10 NHCEs are elig ABC 401kPSP excludes employees of Affiliated Employers who have not adopted the Plan; Eligibility is 1 Year of Service with 1000 hours (no min age); Years of Service with Affiliated Employers are counted for plan purposes Maryland LLC is a multimember LLC taxed as a partnership 5% membership interest: Mr A 95% membership interest: Partnership Z (2 partners, both of whom are unrelated to Mr. A) At 1/1/2016 the membership interest changed when Partnership Z wanted to close down. In response to this, Mr A acquired 90% of the partnership's interest via an assignment of interest Mrs A (Mr A's wife) acquired 5% of the partnership's interest via an assignment of interest As a result of this change in LLC membership , Maryland LLC and ABC Corp are now under common control as of 1/1/2016 Mr. A hired an outside person (unrelated) to manage the day to day LLC operations as he simply does not have the time to do it. There are 5 LLC employees (all NHCEs), 3 of whom are very very part time (never 1000 hours), the other 2, John and Jane, may or may not work 1000 hours in a year for LLC however they are also employed by ABC Corp and have had at least 1000 hours credited per year with ABC Corp. These 2 employees are 2 of the 10 NHCE Participants in the ABC Plan. They both receive 2 separate W2s -- 1 for ABC Corp, 1 for LLC QUESTIONS: How do the 2 "shared" employees, John and Jane, count in the 410b test? Assuming the 3 very part time employees of LLC never have 1000 hours, they will never meet eligibility for 410b testing, BUT, the 2 shared employees, John and Jane, have >12mos, 1000 hours and are eligible for the ABC Corp plan (i.e. they are active participants), yet excluded as far as their LLC employment is concerned. So would the NHC coverage be 10/12 essentially counting them as 1 person each in the numerator but counting them as 2 people each in the denominator (1 as ABC ee, 1 as LLC ee)?? I realize it will pass either way, but next year the LLC #s may increase. Mr. A and his wife are eligible for the ABC Plan, yet assuming they have compensation from the LLC, that portion of their work/compensation is excluded from the plan. How does question #1 apply to them? Does the LLC compensation that is excluded for allocation purposes have to be tested for reasonableness, to prove the exclusion is not discriminatory? or does the LLC compensation have to be included for allocation purposes, i.e. added to their ABC Corp compensation for allocation purposes (SH, TH Min, PS)? Presuming the LLC Compensation is excludable, is 401(a)(4) testing done only with respect to ABC Corp compensation? or is the LLC compensation added in for Avg Ben, Rate Group testing purposes? Thank you!

We recently took over the work for a controlled group of employers that have a separate 401(k) plan for each employer. Deferral and match only, no profit sharing. All the plans pass the ratio percent test for coverage except for two plans - so the average benefits percentage is applied to test these last two plans for coverage. One of these two plans is a safe harbor 401(k) plan. The employer has no other safe harbor plan, thus it cannot be permissively aggregated with any other plan for coverage testing, correct? The final plan happens to be their only 401(k) plan that uses current year testing for ADP/ACP, so I don't think it can be aggregated with the other plans either. The question is regarding the terms 'testing group' and "taken into account" from the 410(b) regulations. In 1.410(b)-5(b), the average benefit percentage for a plan is the ratio of the NHCEs actual benefit percentage in plans in the testing group over the HCEs actual benefit percentage in plans in the testing group. In 1.410(b)-5©, the actual benefit percentage is the average of the employee benefit percentages in the group with all nonexcludables of the employer taken into account, even if not benefiting under any plan taken into account. In 1.410(b)-5(d)(3), the testing group is defined in 1.410(b)-7(e)(1) which states that the testing group is the plan being tested (obviously) plus all other plans of the employer that could be permissively aggregated with the plan being tested. So, when reviewing the prior firm’s coverage testing, they ran the average benefits test for the safe harbor plan by showing zeros for all the hundreds of nonexcludables (those are the employees in the controlled group covered by other plans but not covered by the safe harbor plan), then averaging the results. The averaging takes into account all of those zeros. However, for the current year tested plan, they ran the average benefits test by including allocations for all employees in all plans, including the allocations made in the safe harbor plan, then they averaged those results. So, for the average benefits test for coverage, the "testing group" is only the plan being tested. So does that mean the average for that test include all the zeros for the nonexcludables covered by other plans because they are to be "taken into account"? Or, are all the average benefits provided under the other plans also calculated for purposes of determining the average benefits. It seems like the prior firm did this both ways. Why would the safe harbor plan and the sole current year testing plan be done differently for these tests? Man, that's a long question. Sorry about that.

Hi - I am wondering whether the employees of entities owned by a fund; e.g., a Mutual Fund, must be aggregated with employees of the Fund's management company. It seems there should be an exemption but I am not aware of any. Facts: An investment fund (the "Fund") obtains its employees from a Management Firm. Ownership of the Fund and Management companies is not sufficient to make them a controlled group; however, they are likely an Affiliated Service Group. The management firm sponsors a qualified plan covering its own employees. The Fund owns 100% of several companies that offer retirement benefits with much lower contributions/benefits than those of the management org’s plan. Some of the companies owned by the Fund are held as passive investments only ("Passive" entities). Other companies are actively managed by a small group of employees of the management company ("Managed Entities"). Issues: 1. Must employees of the Passive entities be included in coverage/discrimination testing of the Management Org’s plan? 2. Same question as above with respect to employees of the Managed Entities. Proposed Answers: 1. The passive entities need not be counted in discrimination testing because: a. They are not part of a controlled group with the Management Company b. They do not render or receive services to/from the Management Company. 2. The managed entities need not be counted in discrimination test because: a. They are not part of a controlled group with the Management Company; and b. Whatever compensation they pay for service from employees of the Management Company will represent an insubstantial portion of gross revenues of the Management Company Additional Thoughts: I believe there are clear rulings in the area of Prohibited Transactions providing that passive investments are not treated as prohibited parties. I would think a similar exemption should apply to entities that are primarily owned as investments, even if they get some services from employees of the investment fund. Thanks very much for your feedback.

Potential prospect is a controlled group, 2 employers each with a plan, plans started a couple years ago. ER 1 plan: safe harbor match, 60 eligibles total, 10 are HCEs, no profit sharing. ER 2 plan: non-safe harbor match. 450 NHCEs, no HCEs, no PS. Matching formula is the same structure as the match formula in plan 1. Can't aggregate a SH plan with a non-SH plan. Coverage for plan 1 is 10% Suggestions for passing coverage?

Hi all! The answer to this may be black and white and I apologize in advance if it has been asked before (I did my due diligence searching for the answer on here prior to posting) Basic info: 1 HCE, 13 NHCEs, multiple contrib allocation groups all of which get a contribution (no zeros), last day employment requirement so all terminees didn't get an allocation Plan passes ABPT but fails 410(b) ratio percentage at 60%. I understand that the plan can pass coverage with ABPT only, given "Reasonable Classification" was utilized in assigning allocation groups. Given the following excerpt, I would say it's okay to skip the 410(b), however one issue is not clear to me: Is giving a zero allocation to terminees due to the last day employment provision of the plan, not make a "Reasonable Classification" thus requiring us to pass the ratio test?? Thank you.

I’ve asked this question generically before, but was hoping I could lay out an example and get confirmation that this is correct: Plan has: Eligible HCEs: 10 Eligible NHCEs: 94 All 10 HCE’s are receiving a PS contribution Only 46 of the 94 are receiving a PS contribution (approx 49%). Plan fails the Ratio % Test for Coverage. That said, when I 410(b) test, ABT is 81%; and all rate groups under 401(a)(4) are above midpoint of 23.5. Plan now passes coverage testing. Is this correct?