401(a)(4) TEST GROUP

[Guest gkaley]

Who gets tested when determining the rate groups when you have a complex controlled group?? One school of thought (read=loose interpretation) says that once you've established the "Plan" by passing 410(b), then only those within that Plan are tested. The conservative school of thought says, doesn't matter, all Nonexcludable employees of the Employer are included in the entire test. This, based on the definition of Nonexcludable employee in the a(4) Regs.

Example:

Large Corporation with 100,000 has 2 Plans, one salary (50,000 Non-Ex Elig's), one hourly (50,000 Non-Ex Elig's). The salaried Plan includes a tiered allocation to many, but not all ee's in that Plan (35,000 benefitting; 15,000 non-benefitting). The corporation also owns 10 additional subsidiaries under 414, each sponsoring their own plan, or in some cases plans. Let's say an aggregate 10,000 ee's in that subsidiary group.

Liberal View = So long as 50,000 ee-salaried Plan passes coverage, then only those 50,000 are included in the test when determining rate groups.

Conservative View = All 110,000 Non-excludable emloyees must be included in the test when determining rate groups.

Does anyone have the Holy Grail answer to this question?

[Tom Poje]

Exactly what do you mean by 'who gets included'?

according to the regs

Employees include:

IRC 414(b) ~ Employees of all corporations which are members of a controlled group of corporations under 1563(a) shall be treated as employed by a single employer.

IRC 414© ~ Employees who are under common control shall be treated as employed by a single employer.

so if you have a controlled group, all the bodies are going to show up.

1.410(b)-7(d)(i) Permissove aggregation for ratio percenatge and nondiscriminatory classification test.

If an employer treats two or more plans as a single plan, the plan must be treated as a single plan for all purposes of 401(a)(4) and 410(b)

so, you are either going to aggreagte and count their contributions, or not aggregate and have a bunch of zeroes on the test. and remember you now have 410(b) treated the same, includables and not benefitings.

In addition terminees with < 500 hours from the 'other' plan are not excluded.

plus if you aggregate, I guess you also have the gateway minimum to worry about as well.

1.410(b)-7(e) Determination of plans for average benefits percenatge test

all plans in the testing group must be taken into account

[Guest gkaley]

Forget aggregation, none of that going on.

I suppose the liberal interpretation (not my personal view, but one that has some legit reasonings behind it - albeit liberal interpretation) argues that (1) under 1.410(b)-7© you have your separate contribution components that are tested separately...pretty basic. If you apply 1.401(a)(4)-9©(1) to the contribution type component as a restructuring, as long as you can establish a passing coverage on that group, the amounts portion of the test can be done on that group alone. The policy argument being, ADP and ACP are the amounts tests for 401(k) and 401(m), respectively. General Test is for nonelective, employer profit sharing contribution.

There is no argument that when determining the nondisciminatory classification mid-points, that the entire controlled group is used. But since 1.401(a)(4)-2©(3) does not specifically state "employer" but only those benefitting and non-benefitting under the Plan. That can be argued to be just those in the Plan, as FIRST establised by 410(b).

[AndyH]

gkaley, I have asked enough confusing questions here to know one when I see one.

If you would break down your question a little simpler, many here would be happy to help get you an answer.

What Tom told you was of course correct, but it apparently did not answer your question, so please try again.

And relative to the subject matter that you are referencing, it is likely that there is one answer, not two. Or at least one pretty unified opinion.