410(b) OR 401(a)(4)?

[Guest gkaley]

The scene:

4 companies, all in one control group. 1 company receives a 5% employer discretionary contribution; the rest do not.

The question:

Does this arrangement have to pass a 401(a)(4) General Test?

The nexus of the question is that by NOT giving the 5% to other participants within the controlled group, you have some employees with one rate (5%) and some with another rate (0%). If the arrangement passes 410(B), are we done? And if the arrangement DOES NOT pass 410(B)....including the Avg. Bene. Test....what next? Do you look at the General Test?

[jaemmons]

My first question is whether or not you are using an individually designed doc. (IDP) for this plan. The LRM's released with respect to the GUST restatement of prototype plans, explicitly precluded prototypes from having these arrangements. Therefore, I am assuming you are using an IDP. Since the allocation formula is uniform to all of those covered in the one company, you will pass 401(a)(4) testing using allocation rates (contrib/414(s) comp)), if you satisfy 410(B). You MUST satisfy coverage before you can move to the general test and since there is only ONE rate group (all HCE's are receiving an allocation of 5% or 0%), if you demonstrate compliance with coverage, you will automatically pass the general test.

[Guest gkaley]

Thank you jaemmons. I thought as much - but needed some reassurance.