Aggregating Plans

[Guest MichaelO]

I have a prospective client that is a law firm with the following scenario:

1 Plan for Associate Attorneys only-Plan only has Elective Deferrals

1 Plan for everyone else-Plan has Deferrals, Match, Profit Sharing and QNEC because they always fail the ADP Test.

They want to amend the non-Associate Plan for cross testing. My questions are:

1. Since I would have to aggregate the Plans for coverage and 401(a)(4), would I also have to aggregate for top heavy testing?

2. Would I still be able to test the 401(k) Plans separately?

One other question: There are two Associates who became Partners and then opted out of the Plan. When I determine the Top Paid Group are they excluded from all consideration or are they still considered HCE's. I know I would not include them in the ADP Test but should I include them for the HCE count?

Thanks

[Blinky the 3-eyed Fish]

I don't understand your 1 and 2 points. You state in 1 that you would have to aggregate for 401(a)(4) and 410(b), but then you state in 2 that you wish to test the 401(k) separately.

Do both plans pass coverage on their own or don't they? It sounds like both have HCE's, so they might.

The answer to your last question is yes, they are considered HCE's. To what degree they are included in tests depends what test is being run.

[AndyH]

MichaelO, please slow down a bit. More information is needed.

You actually have 4 plans for testing purposes. You have a K plan for associates, and K, M, and PS for others.

You say "they want to amend the non-associate plan for cross testing". OK, fine, that is the PS plan. Then you say "Since I would have to aggregate the Plans for coverage and 401(a)(4)". That is where you lose us. You do not aggregate the PS with anything else for 410(b) or 401(a)(4). You are not permitted to do so. Those plans are manditorily disaggregated.

Are you referring to top heavy testing? If so, that will not affect a(4) and 410(b) for these plans because they are manditorily disaggregated.

Maybe that helps you rephrase your questions?

[Guest MichaelO]

Maybe if I frame my questions in terms of what the client wants to accomplish it will be more clear. Their intent is to keep the Associates only plan as it is, which is a deferral only 401(k). The other Plan that benefits everyone else is to be amended as a cross-tested 401(k) Profit Sharing Plan in which they also fund a Match and QNEC. Both plans pass coverage separately. Would I then need to aggregate the Associates plan with the other plan for 401(a)(4), ADP/ACP or Top Heavy testing?

Sorry for the confusion on my original post.

Thanks

[AndyH]

Certainly never a need to apologize when asking a question.

You have several different questions.

1. Do you need to aggregate the associates plan with the cross tested PS plan for a(4) or 410(b). NO, you are not permitted or required to do so. The confusion here may lie in the potential need for the average benefits percentage test. For that part of the a(4) and 410(b) tests, IF NEEDED, you bring in everything. But that is not the same as aggregating.

2. If the two plans separately pass coverage, must you aggregate the k plans for ADP purposes. Answer: You can but need not. If you aggregate the K plans for ADP you must aggregate for 410(b). But this does not affect the cross tested PS plan because that is considered another plan. You are only aggregating the deferral portions of each plan. This has no affect on cross testing.

3. Must you aggregate for top heavy? Yes if a Key employee participates in the associates plan (which is unlikely). But that also has no affect on the cross testing.

So, in summary, I see no problems with what you propose.

[Guest MichaelO]

Thank you Andy.

[Guest smhjr]

Michael,

When I hear associates only I think highly paid attorneys, but maybe that is not the case. My first thought was how could the associates plan pass coverage with only HCEs. Maybe I am giving the associates too much credit and they aren't highly paid though.

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Andy,

I'm also a bit confused on your statement. Perhaps I am getting confused on the definition of aggregating. My confusion is that in statement #1 you say that, "Do you need to aggregate the associates plan with the cross tested PS plan for a(4) or 410(b). NO, you are not permitted or required to do so..." In your #2 statement you say, "If you aggregate the K plans for ADP you must aggregate for 410(b)."

Isn't that contradictory? It sounded like you said you are not permitted to aggregate for 410(b) and then you say that you must aggregate for 410(b) if you aggreagte the ADP test.

After thinking about the scenario, I am guessing that my asusmptions regarding who is covered by each plan is incorrect.

[AndyH]

smhjr, the plan for the associates has only one "plan", that for deferrals.

The other plan actually has 3 plans for testing purposes, one with deferrals, one with a match, and one with a profit sharing part. Each of these three cannot be mixed with the other.

These different types are "mandatorily dissagregated" for testing purposes, even if they are within the same document and are filed under the same 5500.

So, when I say you can aggregate the associates plan, I mean deferrals to deferrals. That is tested under 410(b) and ADP either separately or together (aggregated).

The profit sharing "plan" has nothing it can be aggregated with.

The match "plan" also has nothing it can be aggregated with.

Is that clearer?

And, smhjr, associates in a law firm are typically the lower paid lawyers who have not achieved partner status, so they are usually a mixture of HCEs and NHCEs. And they typically get treated like dirt, relatively speaking.

[Tom Poje]

all ees employed by one employer, but different ees in different plans.

therefore permissive aggregation rules apply. However for coverage purposes include all ees in the denominator.

If the associates plan consist of mostly HCEs then coverage for 401k would probably fail if you do not permissively aggregate.

[Guest MichaelO]

With the current Census information we have, 410(b) passes for each plan individually. The Associates Plan has no HCE's because the client has elected the Top Paid Group option and all the HCE's are in the primary Plan. What happens if in any given year 410(b) for the primary plan does not pass-would they have to aggregate the Plans in total and bring in all of the Associates or would they just have to benefit enough of them for the primary plan to pass coverage?