Nondiscrimination testing on multiple plans of a controlled group

[R. Butler]

Company A and Company B form a controlled group, each maintains their own 401(k) plan. Plan provisions are identical. Company A makes a profit sharing contribution; Company B does not. How do I perform the coverage testing? It seems to me that I test Company A by including all employees and treat employees of Company B as eligible and not benefitting. If Co. A passes then it has met 410(B) on its own and I perform all other nondiscrimination tests separately (Co. B automatically passes on its own because no HCE's benefit). Is this correct?

[AndyH]

Yes, you can do it that way, but only employees of B who meet the age and service conditions of A are eligible and not benefitting from A.

But, remember you have to test coverage for both the Profit sharing and k "plans" separately.

You need to be certain that the k peices pass coverage separately in the way you've described; otherwise the ADP test must be combined and the plans will need to be aggregated for coverage testing, provided the conditions for doing so are met.

[R. Butler]

Everyone who meets 21 and 1 is eligible to defer and is eligible for a match, regardless of hours. That provision is true in both plans. Thus if I am not mistaken 401(k) and 401(m) will automatically pass because all nonexcludable NHCE's benefit. So here is a follow up question, since 401(k) and 401(m) can pass without aggregating, if I have to aggregate for the nonelective do I still test ADP/ACP separately.

[AndyH]

No, lets back up a step. All NHCEs do not benefit in each plan. NHCEs of A do not benefit in B, and vice versa.

You have to treat all employees in each company as if they were employees of one company, with two plans, one covering one group and one covering another. So, depending upon the demographics, Plan B could cover 100% of HCes and 10% of NHCEs. In that case, the plan fails coverage.

Then you need to aggregate. If the provisions are identical, that plan as aggregated will pass. Then, you have to do a combined ADP test, since they must be aggregated for coverage.

So, application of the coverage rules has ramifications on ADP testing, among other things.

Same process for the ps "plan". Add all employees of both group together, then do your ratio for the plan with the contribution.

Does this help?

P.S., no, I don't think that aggregation of the ps "plan" would mandate aggregation of the k "plan".

[R. Butler]

That makes sense.

Thank you for your help.