410(b) testing of 403(b) and 401(k) plans of related entities

[Guest Paula G]

My clients consist of 2 related entities. One entity is a 501©(3) organization, which maintains a 403(b) plan. The other is a for-profit entity, which maintains a 401(k) plan. The plans are identical and provide for elective deferrals, matching contributions and employer nonelective contributions.

Under Reg. Sec. 1.410(b)-6g, I can exclude the employees of the 501©(3) organization in the coverage testing for the elective deferral and matching contribution components of the 401(k) plan.

My question is: can I exclude the employees of the 501©(3) organization when I perform coverage testing of the employer nonelective contribution in the 401(k) plan as well?

[Guest Sieve]

See Treas. Reg. Section 1.410(b)-7(f).

I'm not sure what it means, though. I think it means that you cannot consider a 403(b) plan for permissive aggregation when testing the non-elective contributions (i.e., the non-elective contribution "plan"). So, it appears that you cannot ignore employees covered under the 403(b) plan when testing the non-elective contributions under IRC Section 410(b).

And, that same reg section seems then to permit permissive aggregation of the 403(b) non-elective contributions with other non-electives under another plan when testing the 403(b) plan under Section 410(b).

Is that how you read it?