2 plans in a controlled group

[FJR]

Is it possible to have company A and B who have common ownership to have the following and pass coverage, etc.

Company A has 4 HCE and 125 NHCE with a safe Harbor(Match) 401(k) Plan. No required testing necessary.

Company B has no HCEs and 250 NHCEs with a traditional 401(k) and no match.

Does this pass 410(B) 401(a) etc...? Any thing els to watch out for?

[Mike Preston]

FJR, there is more information needed in order to determine whether the plans you reference have a problem. First, you mention that the companies (A and b) have "common ownership". Do you mean to say that they are in a controlled group? If so, you should say so. Just saying that they have common ownership does not mean that they are definitively in a controlled group. Either identify what the common ownership is, if you are unsure whether they are in a controlled group, or confirm that they are in a controlled group.

Assuming that they are in a controlled group, you are wrong when you state that Company A has no required testing. The first test you have to perform is whether the plan satisfies 410(B). Based on what you have said, it might, or might not. It seems to cover 100% of the HCE's and 33% of the NHCE's. That will pass coverage only if the aggregated plans satisfy the Average Benefits Test. Does it?

If so, you are ok. If not, Plan A fails 410(B) and the fact that it is a safe harbor for purposes of the employer contribution means nothing.

[FJR]

Mike, I appreciate the help. Your first statement on whether it is a controlled group should be clear in the bold section of the thread "Two plans in a controlled group". The other part I want to clarify. The client wants to start a new plan for 2003. If Company A is offered a safe harbor plan and all 125 NHCE's have the ability to defer, you would pass coverage. You would also pass coverage under 401(m). Company B has no HCE's and all NHCE's have the ability to defer. That would pass. Do you have to aggregate the plans or can they pass seperately?

Thanks

[Mike Preston]

Originally posted by FJR

Your first statement on whether it is a controlled group should be clear in the bold section of the thread "Two plans in a controlled group".

Sorry, but the language dealing with "common owndership" negated the prior clarity! ;-(

The other part I want to clarify.  The client wants to start a new plan for 2003.  If Company A is offered a safe harbor plan and all 125 NHCE's have the ability to defer, you would pass coverage.  

What makes you think it would pass coverage? Please answer my question in the prior post.

As to the issue of aggregating plans, you don't have to aggregate them if both stand on their own (that is, pass coverage).

[RCK]

If I can tweak Mike Preston's position: since you have a controlled group, you have at least a potential problem with Plan A, that covers 100% of the HCEs and 33% of the NHCEs. You will have to pass the nondiscriminitory classification test of 1.410(B)-4 and the average benefits test of 1.410(B)-5.

From the design presented (and none of the actual data), I'm thinking that passing is not going to be easy.

RCK