SH 401(k) Plan in an ASG

[Blinky the 3-eyed Fish]

Company A and company B are members of an affiliated service group. Company A sponsors a SH 401(k) plan. Company B does not sponsor any plan.

Company A's plan fails coverage testing and so an -11(g) amendment will be done to add in some company B employees. They will be provided a QNEC of the average NHCE deferral rate to satisfy 401(k) 410(b), a SH contribution and a nonelective contribution. There is no matching contribution.

I have to think this satisfies the requirements of Notice 98-52 but wanted to see if anyone (Tom Poje?) disagrees. My nagging concern is no notice was given to company B employees and they really didn't have the opportunity to participate in the 401(k) portion of the plan. The average NHCE deferral rate is very low, so they are getting a tiny QNEC.

[Tom Poje]

if B had a non safe harbor plan, you could not aggregate for ADP testing, since one is safe harbor and one isn't. but if you can't aggregate for ADP testing, then you can't aggregate for coverage, since you have to test under the same conditions. now, since B doesn't have a plan at all, does that change the rules? I'd express the same concerns you have, since no notice was given, etc, I'd lean toward saying you cant. but if you cant then I dont think an -11g will help since you cant include the B folks.

so it raises a couple of questions.

1. will plan A pass ADP testing if not treated as a safe harbor (I thnik you could actually give up the free ride and do that, and it might not matter if the plan can pass anyway)

2. can plan A pass the avg ben test (treating B as zeroes (non aggregated)) or if 1 is true, then aggregate the plans and then the QNEC is okay (I think, but since it is after my 4:15 limit my brain is melting down.)

long live blinky!

[Blinky the 3-eyed Fish]

Tom, the plan cannot pass the ADP test without the free ride. The plan does not pass coverage (ratio or ABT) without adding in some B employees. It needs the safe harbor to apply or they're in some trouble.

If you come back tomorrow with a refreshed brain and new information, I welcome your further input.

[Kevin C]

The safe harbor notice goes to all "eligible employees". That term is defined in 1.401(k)-6 to be an employee who is directly or indirectly eligible to make a cash or deferred election under the plan for all or a portion of the plan year.

The amendment you are talking about doesn't allow the added Company B employees to make a cash or deferred election for the plan year in question, they get a QNEC, so I don't see why they would be required to receive the SH notice. Also, 1.401(a)(4)-11(g)(3)(vii)(A) says the employees receiving the QNEC must be NHCE nonexcludable employees who were not eligible employees for the plan year.