Using multiple matching contribution formulae in a control group

[Guest jvanheyde]

A control group (parent/sub) currently operates as a QSLOB and has separate 401(k) plans and different matching formulae for the two plans (one for P and one for S). The group soon will reorganize and lose their QSLOB status. However, for various reasons, there is a need to continue the two different matching formulae. What discrimination testing and other issues should we expect. The two plans will be merged into one, but there will be one match for all employees except for those employees employed by the subsidiary, which will have a more lucrative match.

It appears the major issues are 401(a)(4) and 401(m)/ACP testing. In terms of the amount of the match, it appears you just test the total or aggregate match as one. In theory, it seems like as long as the subsidiary with the more lucrative match has a better participation rate by its NHCEs than the parent, this actually could help the parent's ACP testing, or it at least won't harm it. The sub also has a greater concentration of NHCEs than the parent.

It also appears that the other issue is the benefits, rights and features testing in 1.401(a)(4)-4. The more lucrative matching formula will have to satisfy 410(b) in order to pass the "currently available" requirement, and then, based on all the relevant facts and circumstances, it will have to be shown that the group of employees to whom the more lucrative benefit formula is given does not result in the HCEs being substantially favored. Again, since there is greater percentage of NHCEs in the sub, and those NHCEs in the sub historically have deferred more than the NHCEs of the parent, it seems like this is not going to be discriminatory.

Is there anything else that needs to be analyzed?

[austin3515]

Sounds to me like you've done your homework. I've got nothing to add...