general question about affiliated service

[Lori H]

Suppose two companies, each who maintain their own retirement plans, are determined to be an affiliated service group under the management organization definition. Yet they have operated independent plans with different eligibility requirements and employer funding. Definite VCP candidate?

[Kimberly S]

Do they pass testing when combined?

[Lori H]

Nondiscrim testing has always been done separately. The plans have been operating as non affiliated and are in the process of checking with their corporate atty to determine if they are in fact an ASG.

[austin3515]

IF they are an ASG, the first step is to test each plan for coverage, treating the employees of the other company as not benefitting. If you pass coverage in both plans, everything is hunky-dorey.

Purely based on speculation I'd say you might have a problem, because presumably, there is a very high concentration of HCE's in the management company plan. It is when one plan covers a disproportionate number of HCE's that you run into a coverage problem, particularly if that plan is more generous.

[Lori H]

IF they are an ASG, the first step is to test each plan for coverage, treating the employees of the other company as not benefitting. If you pass coverage in both plans, everything is hunky-dorey.

Purely based on speculation I'd say you might have a problem, because presumably, there is a very high concentration of HCE's in the management company plan. It is when one plan covers a disproportionate number of HCE's that you run into a coverage problem, particularly if that plan is more generous.

The management company is a Safe Harbor and does have a higher number of HCE's. The other is a group of hotels with a non matching 401(k) and 3 month eligibility requirement. This plan was established after the management company.

[austin3515]

To be clear, its the CONCENTRATION of HCE's, not the number. But based on the additional info you provided it sounds like this will be the case.

The next step for you is to crunch the numbers and see how it goes. Remember, if you fail the ratio percentage test, you can always try the Avg. Ben. Test.

[rcline46]

You might have just blown up both plans! You cannot aggregate a Safe Harbor and non-safe harbor plan. I would not want to be the 'consultant' on this case because there just might be a malpractice issue here if you cannot get the plans to be tested individually.

Time for both the client and you get your own ERISA counsel and get under client-attorney privilege and cease public discussions.

IMHO of course.

[Lori H]

Well at the time the non SH was established(1998), its doc was written as a non controlled group/non-asg plan. Only recently has this question about it possibly being an ASG come up. I guess they could apply to the IRS to determine ASG status.

[austin3515]

Documents do not need to be written in a special way in light of controlled groups. Also, as I mentioned earlier, often-times a seemingly minor detail can definitively rule out ASG status. Competent ERISA counsel should be able to tell you if it's a gray area or black and white. Save you the trouble of applying to IRS (yuck!)