controlled group member adopts prototype but participates in a different plan

[k man]

this is bizarre but i have two entities adopting a prototype. one company just never participated in the plan, instead continuing to participate in its own plan. i know that both plans must be tested together regardless but assuming they each pass, i am thinking i have another issue. that is that one company adopted the plan and did not participate in it. anyone know if i have a problem?

[Guest Bob K]

If the prototype that was adopted was a Standardized Prototype, you must include all members of the control group and there are no exclusions, other than the statutory. I would say that you have a problem.

If the prototype is Non-standarized and you can pass coverage, you do not have a problem.

[Guest JimD]

I think there are potential issues. For example, if the plan they both participate in is a profit sharing plan was a contribution made and allocated only to one company? The plan may say the contribution is allocated to all eligible participants. Or if both are 401(k) plans, were employees given an option as to the plan they could contribute? Were they informed of both plans? Are matching contributions different? Its possible the plans are fine but I think there may be reasons to have them unparticipate.

[k man]

the plan in question is non standardized. i believe both plan have a match and benefits are the same. we tested coverage adding the employees of the non participating employer that adopted our plan. however, now we must test the other plan, including the participants in our plan.

[E as in ERISA]

I don't think that you want the second company to be an adopting employer in the plan in which it isn't participating. I think that you need to undo it. (But you might want to check and see what is the intended result -- both in the same plan v. each in their own).

[k man]

the second employer intends on actually participating going forward. i am concerned about the past two plan years in which they were an adopting employer but did not participate.