ADP correction under EPCRS - Controlled Group

[Guest awojtaszek]

I'm working on coverage testing for the 2004 plan year (working on clean up of a plan that had many issues) for a controlled group of employers. They sponsor 3 plans. Plans will be aggregated for testing purposes.

I am trying to make sure that my coverage testing will not affect my options for the ADP test - which will fail, and will be corrected under EPCRS.

I have DF, MT and ER contributions. I know that otherwise excludable employee disaggregation can be separately elected for each portion of a plan. But I know that I can't disaggregate for the 401k portion or 401m portion for the 2004 year, since I can't do it for the ADP/ACP testing. However, I would like to use it for the 401a portion since I have one plan with immediate eligibility for the ER contribution.

My bosses comments: "The problem I am having with testing otherwise excludables for coverage when not permitted to test separately for ADP/ACP purposes because of the provisions of EPCRS concerning the one-for-one correction for failing to correct within 12 months. Specifically, Appendix B, 2.01(1)(b) states: "Under this correction method, a plan may not be treated as two separate plans, one covering otherwise excludable employees and the other covering all other employees (as permitted in sec 1.410(b)-6(b)(3))."

The problem is that this statement from EPCRS is very broad. It could be interpreted to include coverage, or not. The other thing that bothers me is that if we are using AVG Benefit, rather that ratio/%, then we have to test all benefits together. In that event, we are going to have to include the otherwise excludables in the average benefits test because they have to be included for the k and m components".

I had one additional thought that my boss didn't include and that is .... in EPCRS is also states that the reason you can't treat the plan separately is so that you can't reduce the number of employees that would be eligible for a QNEC. If I am just disaggregating the 401a piece, I am not affecting the number of people entitled to QNECs.

So with all that said, does anyone have additional comments or thoughts on this issue? Thank you.

[Mike Preston]

I dislike the way you described something. Correct me if I'm wrong, but aren't you saying that you are CHOOSING to correct under the 1 for 1 method and because of that choice you are precluded from disaggregating otherwise excludables when testing the ADP/ACP? If so, then stating that you are precluded from disaggregating is not a fair description unless you make it clear that said preclusion is solely because of the choice you have made.

With that said, I don't see any reason why what you do for the ADP/ACP test should have any impact on how you test 410(b) for the non-ADP/non-ACP portions of the plans. They are separate and distinct tests under 410(b) and whatever you do for the ADP/ACP test never has any impact on what you do for the non-ADP/non-ACP tests.

Also, with respect to the ABT, you perform that test with respect to the tested population. In the case you posit, you will actually have three of them, should you need them. One would be with respect to those who are excludable. One would be with respect to those who are not excludable. And one would be with respect to the combination. The development of this is rather complex and I don't have time to get into it. I have posted rather long messages in the past which identify the sections of the regulations that make this result clear. Maybe somebody else has one of them bookmarked so it can be referenced.

Bottom line: define the group from the plan you want to test under 410(b) (without permissive disaggregation; with permissive disaggregation - those who are excludable; without permissive disaggregation - those who are not excludable) and that group defines who you include in the ABT on a controlled group wide basis.

In almost all, but not 100% of cases, testing the otherwise excludables passes because they are typically NHCE's.

[Guest awojtaszek]

You are right, I should have clarified my wording with regard to the statutory exclusion. You are right... I am precluded from using the statutory exclusion only because of the choice made to use EPCRS to correct the failed ADP.

Thank you for your comments it was a help.