Coverage Test - Controlled Group

[Guest tbyrd]

I have read a number of responses to questions regarding coverage testing for controlled groups and I am not understanding the term "passes on its own" with relation to the entities involved.

Please help me understand by example with the following data:

Company A - 14 Non-excl. NHCE, 14 benefitting NHCE, 6 Non-ecl. HCE,6 benefitting HCE

Company B - 5 Non-excl. NHCE, 5 benefitting NHCE, 1 Non-excl. HCE, 1 benefitting HCE.

Would the results for Company A's coverage look like:

14/19 divided by 5/6 = 85%?????????????????????????

If the employers are under two separate plans and they each have different allocation rates and contribution types (e.g. one matches and one doesn't) and they pass coverage using the ratio test do I still need to test the contribution rates for non-discrimination?

One more question - can you have two employers of a controlled group each adopt a separate standardized plan or do they need to be non-standard?

[Tom Poje]

Start with the following:

In a controlled group, all employees are treated as if employed by one employer (Code section 414(b) © and (m)

Now, the question would be if you choose to aggregate the plans or not. If you choose to aggregate for coverage you must aggregate for nondiscrimination (ADP and other) testing

somewhere in your example you are off an HCE, but I will go with the following

A is 14 NHCE 5 HCE

B is 5 NHCE 1 HCE

Total 19 NHCE 6 HCE

A = 14/19 / 5/6 as you indicated

B = 5/19 / 1/6

but I would add 'maybe'. This would be true if plans had the same eligibility. If plans had different eligibility then you take that into consideration.

So when you look at 'A', anyone in B who did not meet the eligibility of A is not ' includable and not benefiting' but rather 'excludable'

In addition if someone in B had met the eligibility of A but terminated with < 500 they are includable and not benefiting because the exclusion rule only applies to 'participants' and that pewrson was never a participant in A

[Guest pjb]

Q - can you have two employers of a controlled group each adopt a separate standardized plan or do they need to be non-standard?

A - each must adopt a non-standard plan. Standardized plans force all employers in.

[Guest tbyrd]

Thanks for your responses.

Tom,

I guess I am confused about whether the plans can decide to be aggregated or not. If you are forced to look at all employees of the employers in the controlled group, where does the choice come into play?

In this specific coverage example, would this be considered as aggregating the plans?

[Tom Poje]

see 1.410(b)-7(d) permissive aggregation - this is an option, not document driven

an employer MAY designate two or more separate plans as a single plan.

(I am working with the assumption that you have 2 separate plans)

I suppose also see sced T question 4(b) in testing....does the the employer aggregate plans..

lets change the numbers

A 10 NHCE 5 HCE

B 10 NHCE 1 HCE

Tot20 HNCE 6 HCE

if I dont aggregate then for A I have 10/20 / 5/6 = 60% Fails ratio%

If I aggregate I have 20 / 20 6/6 = 100% so plan passes

so why not aggregate every time?

because you have to aggregate your non discrim test as well.

A HCE = 6% NHCE 4% passes

B HCE = 4% NHCE 2% passes

but when you aggregate, because there are more HCEs in A you get

A & B HCE 5.67% NHCE = 3% Plan Fails!

Now, in this example the ratio for A was 60%. that easily passes any safe harbor% so all plan has to do is pass the avg ben % test and you are okay. There is no choice in this test. all plan aggregated whether you permissively aggregate plans or not. All contributions are aggregated (eg deferrals match and ps) even though for other coverage thety are tested separately