Multiemployer 401(k) Plan ADP Testing

[Guest Grumpy456]

Is a multiemployer plan subject to ADP testing?

I think a multiemployer plan is subject to ADP testing for the following reasons:

1. According to Sal Tripodi's ERISA Outline book (he says it better than I can):

a) When a 401(k) arrangement fails to satisfy the ADP test and corrective action is not taken on a timely basis, the plan is treated as having a nonqualified cash or deferred arrangement.

b) Under a nonqualified cash or deferred arrangement, the elective deferrals of the employees are not excludable from income, so the employees are taxed on their deferrals.

c) Normally, a nonqualified cash or deferred arrangement must satisfy the general nondiscrimination requirements of IRC Sec. 401(a)(4). However, a nonqualified cash or deferred arrangement that benefits union employees is deemed to satisfy IRC Sec. 401(a)(4).

d) Although the arrangement is deemed to satisfy IRC §401(a)(4), the elective deferrals of the union employees would not be excludable from income if the 401(k) arrangement fails the ADP test and corrective action is not taken.

2. The IRS also discusses application of the ADP test to union employees in its Multiemployer Plan Audit Guidelines (Internal Revenue Manual 4.72 (May 4, 2001)).

At IRM 4.72.14.3.13(6) on page 45 of the Internal Revenue Manual, the IRS writes:

One of the difficulties for plan administrators of multiemployer 401(k) plans is obtaining accurate compensation data for participants from the various contributing employers for purposes of conducting the average deferral percentage ("ADP") test. Employers may not be forthcoming in response to an administrator's request for compensation data as it is generally regarded as proprietary information. One practice used by some plan administrators is to multiply the hours worked during the year by the participant by the negotiated hourly wage under the current collective bargaining agreement covering that participant. Another source of information is the contribution remittance reports filed by each employer with the plan. However, the Service does not permit ADP testing using data that is not accurate with regard to each participant. If the plan administrator performs the ADP test using a method that only approximates each participant's compensation data then a back-up method for verifying the accuracy of the data must also be used.

Any guidance/thoughts/comments would be greatly appreciated. Thanks!

[KJohnson]

Grumpy,

I think your analysis of the need to do the ADP test is correct. There are clearly mutiemloyer plans that require reporting and testing see this link:

https://www.neibenefits.org/faqdocs/401kFaq...20recordkeeping

What information gets reported to the NEI Benefits Office?

On a monthly basis, each employer must report the deferral amounts (employee contribution) to the Benefits Office on the Deferral Report Form provided by the Benefits Office. An electronic format approved by the Benefits Office on tape or diskette may also be used. Reports must be filed every month. The Deferral Report Form must be filed even in months when no deferral contributions are due. The earnings/W2 wages are reported on the Hours Report Form in order to track wage information for non-discrimination testing.

At the very least the trustees should be informed of this. I think multis are probably more likely to be audited. BTW do you have a match? I believe that you do get a pass on the ACP so I have always wondered whether you could just pull any match over to the ADP test as a qmac and since you get a pass on ACP-- problem solved. Or, would the IRS say that using a qmac means you now have to pass ACP when you wouldn't have to perform the test otherwise?

[Effen]

A multi-employer 401(k) would be extremely rare. Are you sure it is a 401(k)?

Often they have DC plans that they think is a 401(k). The contribution rate is negotiated, or even set by the membership. They think it as "employee" contributions since it is "their" money, but in reality it is an employer contribuiton.

If is is a 401(k), how do you track employee money from so many different employers? It has to be an adminstrative nightmare.

I have seen several cases where the union guys have no real understanding of their plan and they assume it is a 401(k) and they solicite quotes based on what they thought. Sometimes even the attorney doesn't really know what it is if they are not strong in ERISA.

If it is a 401(k), I'm curious what union it is and what part of the country? (Don't be too specific.)

Good luck

[Guest Guest99]

Grumpy, you have a real issue:

1. multiemployer 401(k) plans are subject to the ADP test (and Effen, they are out there);

2. the administrator (or some service provider) should be doing the ADP test each year (based on best efforts to get good data, which should have been part of the planning stage for the 401(k) feature);

3. multiemployer plans are audited by the IRS (and DOL) more frequently than you would think; and

4. as an aside, why hasn't the attorney advised the Board of Trustees accordingly in an open meeting.

[KJohnson]

A number of multiemployer defined contribuiton plans (they used to be called annuity plans) have been turned into 401(k) plans. Or, some have started from scratch. In fact, I think that 401(k)'s are rapidly becoming the rule for multiemployer DC plans rather than the exception.

The elevator constructors have one referenced in my post above.

So do the Teamsters

http://www.teamster.org/benefits/401k/401k.htm

So does the IUE/CWA

http://www.iuepension.org/IUECWA401kPlan/4...ngEmployers.htm

OPEIU

http://www.westernstates.aibpa.com/401k/index.htm

MEBA

http://www.mebaplans.org/PDFFiles/401(k)%20Regs.pdf

IATSE

http://www.iatsenbf.org/employer/files/Con...0Handbook_1.pdf

USW

http://www.uswbenefitfunds.com/401kplan.htm

UMWA

http://www.umwafunds.org/cdsp/index.htm

Many locals have them as well:

http://www.plumberslu130ua.org/site/section/2/61

http://www.local82benefits.org/401k/401k.pdf

I am willing to bet you could find hundreds. For example I searched on freeerisa for 401(k) plans with over 5,000 participants with the word "trustees" in the name of the plan sponsor and came up with 49. All of these are 401(k)s, some might not be multis but I bet most are (as usual there are some repeats as well based on keying differences in the name on the 5500 form). If you drop the participant count down to 2,500 there are more than 100 (freeerisa will only display the first 100).

BD OF TRUSTEES NORTHWEST SHEET METAL WORKERS SUPP PENSION PLAN

BD OF TRUSTEES OF THE ELEV CONST ANNUITY AND 401K RET PLAN

BOARD OF TRUSTEES - UMWA CASH DEFERRED SAVINGS PLAN OF 1988

BOARD OF TRUSTEES AMERICAN MARITIME OFFICERS 401K PLAN

BOARD OF TRUSTEES ENTERTAINMENT INDUSTRY 401K PLAN

BOARD OF TRUSTEES I A T S E ANNUITY FUND

BOARD OF TRUSTEES IATSE ANNUITY FUND

BOARD OF TRUSTEES INTERNATIONAL UNION OF OPERATING ENGINEERS

Company Name

BOARD OF TRUSTEES OF THE NATIONAL ELEVATOR IND 401K PLAN

BOARD OF TRUSTEES OF THE NATIONAL ELEVATOR IND 401K RET PLAN

BOARD OF TRUSTEES OF THE TEAMSTERS

BOARD OF TRUSTEES OF THE TEAMSTERS - NATIONAL 401K SAVINGS PLAN

BOARD OF TRUSTEES OF THE TEAMSTERS- NATIONAL 401K SAVINGS PLAN

BOARD OF TRUSTEES OF THE TEAMSTERS-NATIONAL 401K SAVINGS PLAN

BOARD OF TRUSTEES OF THE TEAMSTERS-NATIONAL 401K SAVINGS PLAN TRUST

BOARD OF TRUSTEES OF UA UNION LOCAL NO 290 PLUMBER STEAMFITTER & SHI

BOARD OF TRUSTEES UFCW LOCAL 5 SAVINGS PLAN

BOARD OF TRUSTEES UFCW LOCAL 56 SAVINGS PLAN

BOARD OF TRUSTEES-OREGON LABORERS- EMPLOYERS PENSION TRUST FUND

CENTENNIAL STATE CARPENTERS PENSION TRUST FUND BOARD OF TRUSTEES

SEE FOOTNOTE 1 SHELL PAY DEFERRAL INVESTMENT FUND TRUSTEES

THE BOARD OF TRUSTEES OF THE COMMUNICATIONS WORKERS OF AMERICA

THE BOARD OF TRUSTEES OF THE COMMUNICATIONS WORKERS OF AMERICA -SAVING

THE BOARD OF TRUSTEES OF THECOMMUNICATIONS WORKERS OF AMERICA - SAVING

THE BOARD OF TRUSTEES THE PACE INDUSTRY

THE BOARD OF TRUSTEES THE PACE INDUSTRY 401K PLAN

THE BOARD OF TRUSTEES USW INDUSTRY 401K PLAN

TRUSTEES OF ELECTRICAL WORKERS LOCAL NO 292 401K PLAN

Company Name

TRUSTEES OF ELECTRICAL WORKERS LOCAL NO 292 DEF CONT & 401K PLAN

TRUSTEES OF IBEW LOCAL UNION NO 520 ANNUITY TRUST FUND

TRUSTEES OF LOCAL 1776 & PART EMP

TRUSTEES OF TEXAS IRON WORKERS DEFINED CONTRIBUTION RETIREMENT PLA

TRUSTEES OF TEXAS IRONWORKERS DEFINED CONTRIBUTION RETIREMENT PLN

TRUSTEES OF THE CULINARY AND BARTENDERS 401K TRUST

TRUSTEES OF THE IUE-CWA 401 K RETIREMENT SVGS AND SECURITY PLAN

TRUSTEES OF THE IUE-CWA 401K RETIREMENT SVGS AND SECURITY PLAN

TRUSTEES OF UFCW LOCAL 1776 & PART EMP RETIREMENT & SAVINGS PLAN

BOARD OF TRUSTEES INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL 4 A

BOARD OF TRUSTEES IUOE LOCAL 4 ANNUITY FUND

BOARD OF TRUSTEES OF SUPPLEMENTAL INCOME TRUST FUND

BOARD OF TRUSTEES OF THE AMALGAMATED TRANSIT UNION

BOARD OF TRUSTEES OF THE BUILDING SERVICE 32B-J SUPPLEMENTAL RETIREMEN

BOARD OF TRUSTEES OF THE BUILDING SERVICE 32BJ SUPPLEMENTAL

BOARD OF TRUSTEES OF THE BUILDING SERVICE 32BJ SUPPLEMENTAL RETIREMENT

BOARD OF TRUSTEES OF THE DEFERRED SALARY PLAN OF THE ELECTRICAL

BOARD OF TRUSTEES OF THE DEFERRED SALARY PLAN OF THE ELECTRICAL INDUST

BOARD OF TRUSTEES OF THE ELEVATOR CONSTRUCTORS ANNUITY AND 401K

BOARD OF TRUSTEES OF THE IBEW LOCAL NO 58 ANNUITY FUND

BOARD OF TRUSTEES OF THE IBEW LOCAL NO 716 RETIREMENT TRUST FUND

[Effen]

I guess I stand corrected, even the unions are now drinking the 401(k) Cool-Aid!

[Guest Grumpy456]

Thanks, everyone, for your comments. The general consensus seems to be that the plan is subject to ADP testing.

[WDIK]

Do you think the TPA's view that "it is more likely to pass than not" is sufficient justification not to run the test?

No.

[Effen]

Do you have any HCEs?

[WDIK]

Even if there were no HCEs, I would still take issue with the TPA's alleged statement that the test "is more likely to pass than not."

[Guest Grumpy456]

Does anyone else think the approach taken by The Elevator Constructors Annuity and 401(k) Retirement Plan (passed along by KJohnson) makes sense: "The earnings/W2 wages are reported on the Hours Report Form in order to track wage information for non-discrimination testing."

[Guest Dell]

I know they are becoming more popular, but it does seem they are full of complications. For example, in the post earlier referring to the elevator workers, employers report the deferrals and compensation monthly. In my experience, not all employers will report timely, and I wonder if they are actually remitting deferrals only once a month? If remitting only monthly, it seems that keeping track of the PT's for late payment of employee deferrals would get tiresome.

How are you handling these issues in practice?