Aggregation Rules

[Guest patdanielson]

Two partnerships are considered one employer by the ownership. The partnerships each have a 401(k) plan and their are highly compensated employees in each of the plans. Do the plans have to be aggregated for testing purposes; ie coverage, top heavy and adp/acp?

[Mike Preston]

Yes. Yes (if there are keys in both). No.

[Tom Poje]

probably to clarify

all employees are treated as being employed by one employer.

therefore, for coverage all bodies show up in the denominator.

it is optional if you want to aggreagte.

if you aggregate for coverage then you must aggregate for the ADP test (or vice versa)

you also have the option of aggregating the 401k portion but not aggregating the nonelective portion for coverage and nondiscrim, but again, you must be consistent.

Top heavy , as Mike indicated would have required aggregation if a key ee participates in both plans.

Thus, while coverage testing might not be aggregated (because you have seperate tests (401k, 401m and nonelective (and possibly otherwise excludables) top heavy would be aggreagted on all.

[Guest sb actuary]

Tom

Help me understand -- how is it optional to aggregate the plans? Aren't you required to aggregate the plans and run one ADP/ACP test for the combined group?

[Mike Preston]

Tom was being nice to me because he knows what I meant, rather than what I wrote.

As to coverage, the plans can be tested separately or combined. However, if not combined, you still use the total population of the combined entities is used to determine whether either individual plan passes.

How you test coverage determines how you run ADP/ACP. If you combine for coverage, you combine for testing. If not, you don't.

One catch, though. If you don't combine, the ADP/ACP of any HCE that participates in both plans is determined for both plans based on combined comp/deferral/match/eecont.