6 person Plan for a subsidiary of a Listed company

[Jim Chad]

I am looking at taking over the 401(k) Plan for a company with 6 employees. This company is owned by a company listed on one of the stock exchanges. The big company also owns at least one other company with 4 employees and no 401(k) Plan.

I am trying to picture how I am going to do coverage testing. I think I am going to have a hard time getting all of the census data for the large company and all of the little ones. Does anyone know of any shortcuts I can take?

(I think the previous TPA saw the Basic Match Safe Harbor and thought no testing was necessary.)

[jpod]

1. Doesn't the 410(b)(6) transition period give you some time to defer any worries?

2/ Probably obvious, but are there any hces in the small company (i.e., taking into account the "top paid group" test, if it is being utilized)?

3. If all else fails, kick the HCEs out of the small company plan (maybe have the parent include them in its plan; I'm assuming that the parent's plan is broad-based enough that this will be a flea on the parent's plan back).

[Mike Preston]

1. I only wish that 410(b)(6) extended to takeovers. I think it is limited to changes in ownership, etc. I didn't see one mentioned in the original post.

2. If there are no HCE's, then there is no reason to post the question.

3. Don't do any kicking until you have confirmed you have a problem.

Are there any other plans sponsored by the same plan sponsor or a member of its controlled group? Are they the same plan design as this one? Can the plans be aggregated for testing?

If, as I suspect, there is a core company with lots and lots of employees and participants, and they sponsor a plan that has the same provisions as the plan sponsored by this 6 employee company, then you can aggregate the plans. If it is a safe harbor, then the only testing you need concern yourself with is 410(b) coverage and if the core company is large enough, the makeup of these 6 employees (HCE vs NHCE) is probably irrelevant.

[Jim Chad]

Good points, guys.

Yes, there is one HCE.

I called an IRS auditor, and here is what I was told off the record. Note: I am paraphrasing from memory.

If I am doing an audit, I would not be too concerned about getting all the data from the parent company. The parent company is the one with the power and can look out for them self. It is the employees at the little companies we are supposed to look out for.

The conversation went on for a while, but that is my summary of it.

[dmwe]

IMHO there are too many factors out of your control to attempt any combined testing. I would suggest you point that out in your service contract and document that combined testing needs to be done but that you aren't the one to do it.