401(k) & Coverage Test -Controlled Group

[ErisaGeek]

Co. A & Co. B are part of a controlled group. Each company however has set up their own plan. What is the rule in regards to coverage testing as well as ADP/ACP test?

Do you have to aggregate both the plans and do a combined coverage test as well as ADP/ACP test? What if each plan passes on its own coverage test and ADP/ACP test? In that case is it safe to argue that you would not need to aggregate the plans for ADP/ACP test or coverage test?

OR

Maybe in controlled groups since the companies are considered part of a single employer no matter whether they are all participating in one plan or separate plans you always have to do a combined coverage test and ADP/ACP test?

If the latter is true than what is the advantage of having separate plans in a controlled group situation since anyway one would have to do a combined coverage and ADP/ACP test?

Thank you for all your help and guidance.

[R. Butler]

Do you have to aggregate both the plans and do a combined coverage test as well as ADP/ACP test?

Not necessarily of the Plans pass coverage on their own you don't have to aggregate.

What if each plan passes on its own coverage test and ADP/ACP test?

If you don't aggregate for coverage then no aggregation for ADP/ACP test.

[Tom Poje]

Just to make clear, especially when you say that 'each plan passes coverage'

in the controlled group all employees are treated as if employed by one employer.

Therefore for coverage, if you test separately, when testing A, all employees of B who met eligibility requirements of A are includable and not benefiting. You are not permitted to exclude terminees with less than 500 hours either. This is coverage only.

ADP test you would only include A's participants.

[Guest IU1994]

Tom,

A question regarding how to classify company B employees in plan A coverage test:

If plan A uses the compensation test to determine its HCE's and plan B uses the top-paid group election to determine its HCE's, then when testing coverage for plan A (and including B's employees in that test) do you determine company B HCE's using the compensation test (per A rules) or top-paid group determination (per B rules)? If, in fact, you use the top-paid group to determine B's HCE's in plan A's coverage test, then what group of total employees are included in that determination, A+B or just B? Thanks.

[Guest qualified plan]

If plan A uses the compensation test to determine its HCE's and plan B uses the top-paid group election to determine its HCE's

This cannot be done. One test for the controlled group, under either method, is required.

[Guest IU1994]

OK, so assume that both A and B use the top-paid group election......is the determination of HCE in A based solely on the employees of A (and likewise for B) for purposes of the combined coverage test, as it should be for the separate nondiscrimination tests? This would seem to make sense because you'd be using a consistent determination of HCE's in both combined coverage and separate testing.

But if all members of a control group are to be treated as a "single employer" for coverage testing, wouldn't the top-paid group determination of HCE for coverage be based on the total employee base of A and B? You would then potentially have a different group of A & B HCE's in the combined coverage test than you would have in the separate A & B nondiscrimination tests. That doesn't seem right....

[Guest qualified plan]

As per my previous message, there would be one test to identify the HCEs in the controlled group. This identification would then apply when performing both coverage and nondiscrimination testing.

[Archimage]

It may not seem right but that is how it is done. Top paid group election could really help reduce the number of HCEs in a controlled group. However, the TPG election must be made my all members of the controlled group.

[austin3515]

Tom (or anyone) -

Why can't you exclude terminees with < 500 hours? I hadn't heard that before. I'm assuming this applies exclusively to the employees not covered by the Plan?

[Tom Poje]

Austin-

its in 1.410(b)-6 (f)

certain terminating employees

item (ii) the employee is eligible to participate in the plan

an ee from B is not eligible to participate in A so he cant be excluded when testing A under this scenario.

see the example (3) at the end of the section.

This is one of the 'few' things that is actually plainly spelled out in the regs.

[austin3515]

And I read that too...

Thanks!