Aggregating plans of the employer for 401(k) testing

[Guest R. Daestrom]

An employer maintains 3 separate 401(k) plans for its employees. Each one I believe covers a different group of employees. One is for CBA ee's, another for non-cba rank and file, and a third for higher paid management. What options are available in regard to 401(k)/401(m) testing? Do all 3 get tested separately, do all 3 get combined for 1 big 401k test, is it optional to do either, or must the answer be found in the plan document?

Thanks

[Tom Poje]

I suppose the document could say you combine since you can add just about anything to a document (with approval of course), but that would be unusual.

You could test separately, combine 2 of 3 or all three.

But what you do for ADP test you must do for coverage as well.

since you indicated plan 3 was higher paid management, I dont see how that one would pass coverage by itself (just guessing on the number of bodies), so I would assume you would aggregate at least a couple of the plans.

You must use least stringent eligibility, etc.

[Guest R. Daestrom]

Thanks for responding Tom. I don't get to work on these larger, multi-plan/1 employer situations too often. If we were to test all 3 separately, am I correct in assuming that all 3 separate tests would contain employees not eligible to be in that particular plan, and would show "0" 401(k) contributions for those employees?

For example, Plan 1 covers 20 employees, plan 2 covers 200, and plan 3 (CBA) covers 250. To test all 3 separately (and assuming eligibility is the same for all 3 plans), would all 3 tests contain 470 employees, with Plan 1 having at least 450 "zeroes"?

[Tom Poje]

generally yes.

in addition you are not allowed (at least in the case of profit sharing piece) to exclude terminees with < 500 hours from another company since they are not 'participants'

[RCK]

I must be missing something here.

IF you are able to test the plans separately, because you are able to pass coverage separately, why wouldn't you have 20 in the Plan 1 test, 200 in the Plan 2 test and 250 in the Plan 3 test?

RCK

[Blinky the 3-eyed Fish]

I agree. Because we are talking about ADP/ACP testing here, the only people in the separate test are those that benefit under that plan being tested.

[Tom Poje]

agree with your comments in regard to the ADP test. I thought the comment was referring to the coverage test in which the ees would be treated as 0 or not benefiting. maybe my confusion.

[Guest R. Daestrom]

I should have been clearer with my comment. I was referring to ADP testing when I asked about whether all 3 tests would have 470 employees.

Just checking to make sure I understand things correctly; if each plan can pass 410(b) coverage testing separately, then each plan may perform the ADP test separately (which would mean Plan 1 would have a total of 20 ee's in the ADP test, plan 2 200, plan 3 250). If the plans must be aggregated to pass 410(b), then only 1 ADP test is prepared, with all 470 ee's included. Is this correct?

Thanks to all for comments

[JanetM]

Yes, but remember that when testing you can disaggrate the union CBA folks into separtate group. The two plans that cover non union are tested as one. The union is tested as one - ususally a free pass unless you have union HCEs.

[jquazza]

Janet,

I'm surprised Tom and Blinky missed that. You're almost right though. It's not that you can disaggregate the CBA, you have to.

[JanetM]

That is what I meant LOL, you must segregate CBA, you may segregate under 21 and 1 year.

[Tom Poje]

jquazza:

Tom doesn't even know what a cba is. apparently its union.

(guess I have been living in confederate country too long????)

[JanetM]

Tom you are lucky not being familiar with CBAs. CBA - collectively bargained agreement aka union contract.