Plan Aggregation

[Guest jim williams]

Our client which consists of a controlled group sponsors a 401(k) plan. They acquired another company during 2005 which sponsors a separate 401(k) plan. One plan applies the current year testing method for adp/acp and the other plan applies the prior year testing method. Neither plan satisfies Sec. 410(b) coverage separately requiring the plans to be aggregated for adp/acp testing. However, with the issuing of the final 401(k) regs in 2005, wouldn't these plans have to be disaggregated because of the inconsistent testing methods? Or does this prohibition apply only for permissive aggregation of plans?

[Guest M. Martin]

I have a similiar situation and would be very interested in the correct method or correction that is required.

[Locust]

Can't you test the plans separately for coverage through the end of the 2006 year (end of plan year ending after plan year of acquisition). It's a transitional rule for acquisitions that should still apply.

Also, if it's permissive aggregation, you'd have to meet all of the rules of permissive aggregation, wouldn't you? If a condition of permissive aggregation is that you use the same testing methods, that is what you'd have to do.

[Guest anne1]

Locust is right in that the plans can apply separate 410(b) tests through the end of the transition period, which is through 2006 in this case. See IRC 410(b)(6)©(ii).

Coincidentally, I just did some research regarding whether plans that are aggregated for coverage have to use the same testing method for ADP/ACP. According to Reg 1.401(k)-1(b)(4)(iii)(B), an employer MAY NOT aggregate plans that apply inconsistent testing methods.