Controlled groups and ADP/ACP testing methods

[Guest lforesz]

Two corporations are members of a controlled group but have separate 401(k) Plans. I seem to recall that both plans must elect to use the same testing method (i.e. current year versus prior year). Does this still apply during the GUST rememdial period or can one plan use prior year and the other current year.

I appreciate your thoughts as well as the guidance as to where this is actually stated in the regs. It may be a result of the definition of employer and treating members of a controlled group as one employer.

[Tom Poje]

according to my cheat sheet, if plans are permissively aggregated you have to use same testing method.

see notice 98-1. I don't have a copy sitting in front of me, I am only going by the notes, so I guess you have to do the research and get back to us!

[Guest lforesz]

Hi,

I did see that in Notice 98-1, but these plans are not "permissively" aggregated for coverage- they are mandated to be aggregated due to the controlled group issue. Each plan would pass coverage on it's own, but since they're in a controlled group, we combine the plans for 410(B) and they pass as well.

The notice doesn't address the testing method issue for plans that are required to be aggregard for coverage. If they are tested for 401(a)(4) seperately can we use different testing methods?

[Richard Anderson]

Plans are not required to be aggregated because of a controlled group situation. The employers are required to be treated as one, but not the plans.

If each plan can pass coverage on their own, then non-discrimination testing (ADP/ACP) can be done separately also. When testing more than one plan of an employer seperately, you include all employees of the employer, including those in the other plan. Basically, for testing you include all non-excludible employees of the employer (entire control group) in the demoninator and include in the numerator only those that benefit in the plan being tested.

Non-discrimination testing must be done in the same manner as coverage testing. If tested separately for coverage, then test separately for non-discrim. If aggregated for coverage, then aggregate for non-discrim.

[Guest lforesz]

I'm following you. The plans are not aggregated for 410(B) and are not combined for ADP/ACP testing. However, do you know if we can use different ADP/ACP testing methods for the plans? I can't seem to find anything that specifically says we can't, however, the distinction may lie in how "plan" is defined for this purpose. Your thoughts are greatly appreciated.

[Tom Poje]

the way I understand thing, you could use different methods as long as you don't need to aggregate the plans.

personally, given the nature of the beast, I would use the same method, that way if you ever need to aggregate them you could do so 'easily'.

Thinking out loud, I guess if you ever needed to aggregate, you would have to use current year method, because if one was prior and the other was current, there is no way you can switch to prior.

[Guest mshah]

Is there any authority indicating that an employer can perform the ADP/ACP test separately and not on an employer-wide basis for each of its plans even if the 410(B) coverage test is performed on an employer-wide basis?