Controlled Group

[commishvp]

Corporation X purchases corporation Y in May 2005. X has a 401(k) plan and Y has no qualified retirement plan. It is my understanding that there is a transition period which the controlled group is deemed to pas coverage until the plan year starting January 1, 2007.

Under the Corbel document Y is excluded until they are an adopting employer. It is my understanding this would exclude Y's employees from the ADP testing for 2006.

In 2007 if Y adopts a separate plan would X and Y both have to pass the ADP test separately? Can it be aggregated or does it have to be aggregated?

Any advice would be appreciated. Thanks!

[ERISAnut]

1) True, there is a transition period through the end of the year after the year the two companies entered "related group" status, provided each organization passed coverage prior to becoming related.

2)True, any time during the transition period, the companies can enter into the same plan and continue forward testing the population as a whole, thereby eliminating the need for the remainder of the transition period.

3) When the two plans are maintained separately, the ADP/ACP test for each plan is not valid until each plan passes 410(b) as a stand-alone plan. Hence, if either plan fails 410(b) when treating the participants under the other plan as non-benefiting, then aggregating the plans in order to pass 410(b) may be inevitable. This, would require all nondiscrimination testing to be done on an aggregate basis.

However, if both plans pass 410(b) on their individual merits, then the ADP/ACP may be performed separately with respect to each plan. Or, they may decide to permissively aggregate for ADP/ACP provided they pass 410(b) while aggregating.