Coverage Testing

[Guest Mike Schwing]

Employer has two plans.

Plan 1 - 401(k) safe harbor basic match plan - covers 3 hce's and 5 nhce's

Plan 2 - Prevailing Wage plan - covers the 5 nhce's (plan 1 above) who work in field

Employer wants to exclude the 5 nhce's from the 401(k) plan becuase he does not want to give them the safe harbor match. Can they do this if I aggregate the plans together and try to pass coverage using the average benefit test? I'm assuming the prevailing wage contribution is so large in relation to the nhce's salaries that the plan will pass ABT on a contribuiton basis and thus coverage. Is this allowable, or do I have to keep them in the 401(k) plan?

401(k) plan is top-heavy but the only contributions to the plan are 401(k) and safe harbor - so doesn't it get out of the mandatory top-heavy minimum because it is a "consists solely" of plan? Or does the prevaling wage going into the other plan screw up the consists solely of portion of the plan? Any guidance is greatly apprecited.

[JanetM]

Forgive the basic quesion. Aren't prevailing wage plan participants covered by collective bargaining agreement? If they are you can exclude then by statute.

[Mike Preston]

By definition, if they are covered under a prevailing wage plan, then they are definitively not covered by a collective bargaining agreement.

I still don't understand how the ABT helps you here. If you end up covering 0% of your NHCE's and 100% of your HCE's it seems a bit difficult to satisfy any test.

[Guest Mike Schwing]

If the 401(k) plan excludes the 5 nhce's who are all in the prevaling wage plan - can I aggregate the two plans to test for coverage using the ABT? I assume from your response that I cannot do this - that if the 401(k) plan excludes these employees that I cannot use their contributions from another plan to show coverage being passed in this plan - if that makes any sense...

[Mike Preston]

You most certainly can aggregate plans and you can use the ABT when doing so, if it suits you. But I still don't understand how it helps you in this situation. Keep in mind that "plans" can only be aggregated for coverage purposes (not for ABT purposes) when they are of a similar "type". For this purpose, "type" means a plan that is not required to be disaggregated. You must disaggregate k plans from m plans from esops from "all other" plans. In your case, your k and your m are mandatorily (sp?) disaggregated with the prevailing wage plan (unless the prevailing wage plan is a 401(k) plan and the monies being deposited are being deposited as QNECs (a design I'm familiar with and works quite well, by the way).

[Guest Mike Schwing]

So - to confirm my understanding - if the prevailing wage plan is a 401(k) plan - and the prevailing wage contributions being deposited into that plan are QNEC's - then for coverage testing purposes I can aggregate the Safe Harbor 401(k) plan with the Prevailing Wage 401(k) plan and pass coverage.

Can I assume then that the Safe Harbor portion of the Safe Harbor 401(k) plan passes coverage also - even though the five nhce's are covered under the prevailing wage 401(k) plan and don't get a safe harbor basic match?

I really need to find out what type of plan the prevailing wage is - becuase I assume if can be something other than a 401(k) plan where the prevailing wage is treated as a QNEC.

[zimbo]

Isn't there a prohibition against aggregating Safe Harbor K Plans with non Safe Harbor K Plans? If so, that would thwart your aggregated coverage testing.