ADP/ACP testing - Multiple ER

[fiona1]

2 different car dealerships are part of 1 plan. It is a multipler employer plan. According to the regulations, each employer has to be tested separatley for ADP/ACP testing.

There is one participant of the plan who worked for both employers during the year. To make it easy, let's say he worked for Company A from 1/1 to 6/1 and he worked for Company B from 6/2 to 12/31.

While at Company A he deferred $5500 and made $44,000. While at Company B he deferred $6000 and made $55,000.

Correct me if I'm wrong, but on the ADP test for Company A, his deferral average will be 5.56% ($5500/$99,000) and his deferral average for Company B will be 6.06% ($6000/$99,000).

Or, would his deferral average for Company A be 12.50% ($5500/$44,000) and 10.91% for Company B ($6000/$55,000).

I think his deferral averages would be 5.56% and 6.06% - but I just can't seem to find any documentation supporting this. The ERISA Outline book says you must use Section 414(s) compensation to calculate deferral percentages. It also says "an employee's section 414(s) compensation includes his compensation for all related employers, regardless of whether the employers maintain a single plan or separate plan".

However, these are not related groups. If they were, then they'd be a controlled group and not a multiple employer.

Any thoughts?

[Jim Chad]

Even though you have 1 Plan document, it looks to me like you have two seperate employers, so you have two seperate plans for ADP testing.

This means you have the higher percentage, based on the lower comp. Also, if he is not an owner, I would guess he is an HCE in one ADP test and an NHCE in the other.

By the way, is it correct that he met eligibility and passed an entry date fast enough to get into the second Plan?

[fiona1]

Thanks for the reply. There is no second plan. There is only one plan document (401(k) plan). It covers 2 employers - and is thus a multiple employer plan because the 2 employers are not a controlled group.

The participant in question has deferred and been a member of the plan for several years. He has always worked for Company A. But in the middle of 2006 he left Company A and is now working at Company B.

He doesn't have to meet entry requirements for the Company B plan - because it is the same plan sponsered by Company A - in which he was already a participant. He just continued to defer into the same plan when he started working at Company B.

In my original post, I said that I was leaning towards combining the compensation for each ADP test. But now I'm leaning the other way. I think separating the compensation is the correct way to go. As it says in the ERISA Outline book, "compensation is remuneration for an employee's personal services to the employer." Since these are separate employers, I'm thinking the compensation should be separated.

[J Simmons]

fiona1,

I think you're on the right track now.