discrimination testing for 401(k) and 403(b)

[Guest Rocky]

An employer has a 401(k) with a match and a 403(b) with only salary deferrals. The HCEs are not permitted to participate in the 401(k) (and the NHCEs elect to participate in the 401(k) because of the match).

Do the plans have to be aggregated for discrimination testing?

[TLGeer]

No. In fact, persons covered under the 401(k) can be excluded in testing coverage under the 403(b), and vice versa. That means you have no ADP or ACP test under either plan.

You don't have to formally exclude the HCE group from the 401(k) to get the same effective benefit. Essentially, the HCEs put what they can into the 401(k), then run a mid-year ADP test and redirect some or all of their money to the 403(b) over the second half of the year. You can also, of course, tie in a 457 to increase the limitations and/or avoid testing, and not be limited to mutual funds as investments.