Using benefits from Union Plan to help pass 401(a)(4) and other testing

[Guest TracyAndrews]

We have a client with a small 401(k) NC plan about 15 participants. In about 2 months, 8 of these employees will be joining the union. The 8 participants will now receive benefits from the union retirement plan. The union provides fully vested flat $10 per hour worked for every union member into their retirement plan. (Comes out to $2080 per person) The Union Plan does not have 401(k) provision.

The 401(k) is very popular feature to these union employees. Can we continue covering these employees in our 401(k) NC plan, (amending not to exclude collectively bargained employees of course) and use the contributions to the union plan to "offset" the contributions to the Profit Sharing? Except in one case each participant has typically received well in excess of $2,080 per year as a contribution.

Therefore the employer would be contributing part of the employee's contribution to the union plan, and the balance to the company's 401(k) NC Plan. (i.e. whatever number gets them up to the 7% they currently receive in the NHCE class of the 401(k) NC Plan)

If we can't recognize the union benefit toward the profit sharing testing, we would have to have all union employees stop their 401(k) contributions.

I see this kind of scenario when we have carve out plans, but the employer is sponsoring both plans. Does it make a difference that one of the plans is not sponsored by the the employer?

Thank you for any guidance.

[AndyH]

I think your question rates a NO on all counts, but your conclusions are not readily apparent. You treat the union employees as if they cease to exist for purposes of non-union plans. What they get or do not get is irrelevant to the non-union plans.

Maybe a better way to say this is that they are not considered in your tests because they are excluded from your testing group 1.410(b)-6(d).

[Guest TracyAndrews]

I'm sorry I was unclear, the union employees (and the company) WANT to let the employees continue to participate in the company's 401(k) plan. I realize they would normally be excluded for all purposes for my testing. What I'm really asking is if this can be done and what affect it would have on testing if we did continue to include the 8 union employees. Could we use any part of the union contributions to offset what we contribute in the PS plan??

[AndyH]

Same answer. They are mandatorily disaggregated, treated as if they were ineligible, whether they are in their own plan or in a plan with non-union people. No offset permitted. Their contributions are irrelevant.

[KJohnson]

Wouldn't they be disaggregated in the 401(k) Plan as well? So, couldn't you just have two profit sharing contribution formulas--one for the collectively bargained employees and one for the non-collectively bargained and not have any 401(a)(4) issues?

I know that there have been discussions regarding if the employer voluntarily does this in the (k), whether they would be treated as collectively bargained for purposes of the 401(k) plan. But as long as retirement benefits were the subject of bargaining (which they obviously were-- but not this specific benefit) then you would seem to meet the language of the regs.

Admittedly, setting this up might be a little tough if you are using a prototype.

[AndyH]

Right. I don't think we are disagreeing.

[KJohnson]

I guess what I am saying it that they could have an offset. They would set their profit sharing formula for union employees under the (k) as a discretionary contribution on a comp to comp basis offset by any contribution made to the "union" plan. No (a)(4) problem for collectively bargained in the (k) since they exempt from (a)(4), and no problem for non-collectively bargained because of the mandatory disaggregation. Do you agree?

[AndyH]

I'm not followin'

No a(4) or any other problem for cb'd, agreed. CB'd are not considered in any testing of non cb'd though, so I don't see anything offsetting anything else. Must be me.

[Jim Chad]

I guess what I am saying it that they could have an offset. They would set their profit sharing formula for union employees under the (k) as a discretionary contribution on a comp to comp basis offset by any contribution made to the "union" plan. No (a)(4) problem for collectively bargained in the (k) since they exempt from (a)(4), and no problem for non-collectively bargained because of the mandatory disaggregation. Do you agree?

Has anyone looked at the TAft Hartley Act? Wouldn't this be an unfair labor practice? The DOL might call this union busting. Any attornies out there willing to weigh in?

[AndyH]

I think the "offset" is a moot point because of the mandatory disaggregation rules? What am I missing? What is violating anything?