safe harbor plan in controlled group

[Guest LoloV]

I'm working on a combined ADP test for a controlled group and have a quick question...Since one of the plans is a safe harbor plan, can I exclude this plan from the combined ADP test? I initially ran the test including this group, but the test failed and some of the participants in the safe harbor plan are getting refunds, which doesn't seem to make sense.

Thanks!

[MWeddell]

It sounds like you've got at least two 401(k) plans in the controlled group. There's a funky special rule if an HCE participates in both plans, but to try to avoid that tangent, I'll assume that the 401(k) plans cover different employee groups.

The first question to ask is are you aggregating the two plans for 410(b) coverage testing. (If the answer is "only for the limited purpose of the average benefit percentage test," then consider that a no answer.) If the answer is yes, you are aggregating for 410(b) purposes, then you must run a single ADP test for both plans and neither plan may use the 401(k) safe harbor rule. (You may also have to amend the plan that you believe is safe harbor because it isn't at least for this year.)

If you are not aggregating for 410(b) purposes, then you must run the plans separately. If one of the plans meets the 401(k) safe harbor rules, then it doesn't need an ADP test.

[Guest LoloV]

Thanks MWeddell for your response. There are not any HCE's that participate in more than 1 401(k) plan. Following is an outline of the plans/group I'm dealing with.

Plan 1 Nonelective

Plan 1 401(k)

Plan 1 401(m)

Plan 2 401(k)

Plan 2 401(m)

Plan 3 401(k)

Plan 3 401(m)

Plan 4 401(k)

Plan 4 401(m)

Plan 4 Nonelective

Plan 4 Safe harbor nonelective

If I understand you correctly, I need to test for coverage/nondiscrimination as follows:

Each portion above is tested for coverage with the Ratio percentage test (Entire control group = denominator, participants benefiting in each portion = numerator.) If any of the sections above fail the ratio percentage test (which some do), the average benefits test is performed including everybody.

The average benefits test has two parts:

1.)nondiscriminatory classification test and

2.)average benefits ratio test.

If each of the sections above pass the nondiscriminatory classification test (which they do) and the contol group is combined for the average benefits ratio test only, the plans are not considered aggregated for coverage and therefore not aggregated for nondiscrimination. Separate ADP tests will be done for plans 1-3 and the 4th passes automatically due to safe harbor status.

Is it also correct that I could combine Plan 1 401(k) and Plan 2 401(k) for coverage and as long as I still pass the nondiscriminatory classification test this way (the average benefits ratio test should not change) I can combine these two for ADP testing as well and still run a separate ADP test for Plan 3?

Thanks again for your help with this.