Control Group Discrimination Testing

[Guest shadebeads]

A single 501c3 organization splits into two organizations with a common board. The board wants to make contributions based on each units profitability. One organization is very profitable and the other is not profitable. There are only a few HCEs but they are in the profitable organization. Must they be tested as a controlled group? Is there a general rule of thumb to determine if a plan would past testing? If the test fails what are the remedies.

Thanks, Shadebeads

[Guest dietpepsi]

If it's a 403(b) plan you could use the disparity test in rev rul 89-23 or just do the general test. It will need tested for nondiscrimination 401(a)(4) in one of the two ways. Once the final 403(b) regulations are finalized, general test will be the only option. Or you could split it into two plan but then both plans would need to pass coverage on their own.