401(k) Testing Question

[mschwechter]

Have a client who previous to 9/1/2004 sponsors a stand-alone 401(k) profit sharing plan via a standardized prototype. On 9/1/2004, employer stopped sponsorship of the stand-alone plan, merged the assets and adopted a PEO 401(k) plan sponsored through Mass Mutual & ADP Payroll. We are attempting to run a 2004 ADP/ACP test on the old plan. Is the old plan required to aggregate compensation; deferrals & match from the PEO plan to perform a combined 2004 ADP/ACP test? Can separate ADP/ACP tests be done as long as coverage under 410(b) is met separately? Does the PEO plan need to aggregate the old plan data as well? Did the employer sponsor two 401(k) plans in 2004? The HCE’s actually deferred their 402(g) limit to the old plan, and did not contribute at all to the PEO plan in the second part of 2004.

[austin3515]

Just went through your situation VERBATIM. You have the option to run one tests (I believe, if you have the ERISA Outling book look up Mergers and Spin-Offs in the index) but for a lot of reasons, testing separately makes a lot of sense. And yes, each plan would need to satisfy coverage for this to work.

The employer is NOT sponsoring the PEO's plan - ADP is sponsoring that one.

If the HCE's contributed nothing to the PEO plan, this may be a scenario where you want to combine the testing. But read up on the requirements for this before you go too far. I think there are some snags to be aware of.