Nondiscrim and Controlled Group

[Randy Watson]

Assume you have a controlled group of corporations with each corporation sponsoring their own 401(k) plan. From what I understand, if each of those 401(k) plans passes 410(b) using the entire controlled group population you can run ADP/ACP tests for each plan separately without taking the other plans into account. Is that exception limited to ADP/ACP? What about 401(a)(4) benefits, rights and features? Do you need to review the benefits, rights and features being offered under the different plans if they each pass 410(b)?

[Tom Poje]

If I understand your statement correctly, I disagree. If you aggregate for coverage, you must aggregate for ADP (or any nondiscrim testing) as well.

If you can pass coverage w/o aggregating then you DONT aggregate the ADP test either.

now, just beacuse you aggregate for 401(k) does not mean that you have to aggregate for the nonelective, but still, whatever rules you use for coverage for the particular 'plan' you are looking at (401(k), 401(m) or nonelective, you must treat the nondiscerim test in a similar fashion. this also applies if you are using the otherwise excludable option as well.

[Randy Watson]

If I understand your statement correctly, I disagree. If you aggregate for coverage, you must aggregate for ADP (or any nondiscrim testing) as well.

If you can pass coverage w/o aggregating then you DONT aggregate the ADP test either.

now, just beacuse you aggregate for 401(k) does not mean that you have to aggregate for the nonelective, but still, whatever rules you use for coverage for the particular 'plan' you are looking at (401(k), 401(m) or nonelective, you must treat the nondiscerim test in a similar fashion. this also applies if you are using the otherwise excludable option as well.

As you can tell I don't get involved with testing so I apologize if I was not clear with my prior post. I wasn't really talking about aggregation in order to pass 410(b). I thought that as part of the 410(b) test you were required to start with the total workforce of the entire controlled group. From there, you would reduce for those who do not satisfy age and service etc....to get to to the coverage testing group and then look at the number benefitting. The number benefitting would not include the employees of other members of the controlled group.

Assuming what I wrote is correct, if you pass 410(b) you run ADP and ACP independently without regard to other employees within the controlled group. My question is whether this also extends to 401(a)(4) benefits, rights and features.

[Laura Harrington]

The "plan" for coverage testing purposes will be the "plan" for nondiscrimination testing as well.

If each separate plan of the controlled group passes coverage without aggregating, then each plan is treated separately for nondiscrimination purposes (including general testing, benefits, rights & features, ADP/ACP).

If you have to aggregate the plans for coverage, thereby treating them as one "plan", then they are also one "plan" for nondiscrimination purposes.

Treas. Reg. 1.410(b)-7(d)(1):

(d) Permissive aggregation for ratio percentage and nondiscriminatory classification tests—(1) In general. Except as provided in paragraphs (d)(2) and (d)(3) of this section, for purposes of applying the ratio percentage test of §1.410(b)–2(b)(2) or the nondiscriminatory classification test of §1.410(b)–4, an employer may designate two or more separate plans (determined after application of paragraph (b) of this section) as a single plan. If an employer treats two or more separate plans as a single plan under this paragraph, the plans must be treated as a single plan for all purposes under sections 401(a)(4) and 410(b).

[Randy Watson]

Can you confirm that if you are not aggregating plans that you don't need to worry about 401(a)(4)? For example, what if you don't aggregate and one plan offers an optional form of benefit that the other plan within the controlled group does not?

[Laura Harrington]

Can you confirm that if you are not aggregating plans that you don't need to worry about 401(a)(4)? For example, what if you don't aggregate and one plan offers an optional form of benefit that the other plan within the controlled group does not?

From the Treas. Reg I quoted above:

If an employer treats two or more separate plans as a single plan under this paragraph, the plans must be treated as a single plan for all purposes under sections 401(a)(4) and 410(b).

The benefits, rights and features testing is under 401(a)(4).

So if you don't aggregate for coverage, you don't have to aggregate for 401(a)(4).

I think the only issue you have to worry about is the catch-up contribution universal availability rule. If one plan offers catch-up, they all have to offer catch-up.

[Tom Poje]

good point about catch-ups, Laura. another issue that comes to mind is if one plan uses top-paid group election and another plan doesn't for HCEs.

[Randy Watson]

good point about catch-ups, Laura. another issue that comes to mind is if one plan uses top-paid group election and another plan doesn't for HCEs.

Thank you Tom and Laura!