Two divisions and ADP/ACP testing

[buckaroo]

Recently we received a call from a prospective client regarding the proposed design of their new plan. They own two companies. Specifically, they stated that they wanted to cover one company (Company 1) and not another (Company 2). They then went on to say that they have a number of employees who receive pay from both companies. Forgetting the coverage issue that goes with the exclusion of Company 2, my question revolves around the ADP/ACP testing and the people who work for both entities. After some thought, my opinion is that the ADP/ACP tests should initially be run using the plan deferrals and ONLY the compensation from Company 1. The compensation would then have to be tested using the compensation ratio test. If that test is failed, then I would need to use all comp (Company 1 and Company 2) for everyone who worked for both entites. Essentially, all employees who are eligible for the plan would be using all comp earned from the control group. (People who are employed by Company 1 whether or not they also received pay from Company 2.)

Is this clear? Does this sound correct? Any comments would be greatly appreciated

[Mike Preston]

I think you need to look to your document provisions to see what happens. While the steps you outline are permissable, they are not the only options available.