Coverage failure

[Guest Bearlee]

2/3 plans of a control group has a hard time passing coverage, because the bulk of the NHCEs that benefit are in this 3rd plan (which also happens to not have any HCEs). The three plans cannot be permissively aggregated because that 3rd plan that has all the NHCEs is a safe harbor match plan while the other two are not safe harbor plans. The 401(k) regs say that in order to be permissively aggregated, they all have to have the same ADP testing method, which is not the case here. The remedy might be to amend the plans to match each other's testing method. But in the meantime, what's the remedy for prior years -- is there no recourse except that the HCE portion of the plan is disqualified and they have to include their accrued benefit as income per Code § 402(b)(4)? How are coverage failures fixed under VCP?

[Tom Poje]

without digging deeper (my desk is covered with too much stuff at the moment) I believe (but certainly could be wrong) you are permitted to aggregate the plans, but you would lose the safe harbor. It sounds like you said the 3rd plan has only NHCEs and is a safe habor as well, which is utterly confusing anyway.