Controlled Group ADP/ACP Testing

[msmith]

2 Companies in a Controlled Group - each have their own Plan - administered by different TPA's. For the Plan the I administer, I cannot pass coverage on my own, so I must ADP/ACP Test the combined group. My ADP Test fails and corrective distributions are required to some participants of the other Plan. However, they pass coverage and they ADP/ACP Test on their own (only their group) they pass ADP and ACP. Do I still correctively distribute, to their participants, based upon my test?

[fiona1]

If you are permissively aggregating the plans for coverage and nondiscrimination - then the results that they have are irrelevant. They don't matter. You can't have it both ways. You have to distribute the refunds to the HCE's of both plans (as provided by the aggregated ADP/ACP results).

Remember that in order to permissively aggregate the plans - they both need to have the same plan year, same testing method, and be able to pass benefits, rights and features testing.

You can always try an Average Benefits Test - if you haven't already. If you pass, then you don't need to aggregate the plans.

[pixmax]

Question, what if one plan is safe harbor and the other Plan is not. They both pass 410b on their own. Therefore I don't need to aggregate them together for ADP testing correct? Do I need to test both plans together for 410b and exclude each group?

[Tom Poje]

if one plan is safe harbor and the other is not you can not aggregate and take advantage of the safe harbor. it's one of those all or nothing deals. thus, if you aggregate, you have lost the advantages that a safe harbor plan provides - in addition you have vested people 100%, etc.

[pixmax]

if one plan is safe harbor and the other is not you can not aggregate and take advantage of the safe harbor. it's one of those all or nothing deals. thus, if you aggregate, you have lost the advantages that a safe harbor plan provides - in addition you have vested people 100%, etc.

I don't want to aggregate the plans. I believe if they pass coverage on their own then one can be a safe harbor and the other tested by itself. However, I am confused on how to test for coverage.

Plan A Plan B

14 employees all benefit 6 employees all benefit

1 HCE 1 HCE

Obviously alone they pass. But do I need to use the denominater of 20? If so, they would fail and then I would need to aggregate plans. We do not want to aggregate because of the Safe Harbor Plan.

[Tom Poje]

in a controlled group scenario you have 'one' employer

so you have 20 employees combined. 18 nhce and 2 hces

now, looking at plan A you have

13/18 NHCE % and 1/2 HCE % easily passes ratio % test

and plan B

5/18 NHCE % and 1/2 HCE % = 55.55% fails ratio %

you have 18 / 20 NHCE concentration % = 90% or a safe harbor of 27.5%

since 55.55% > 27.5% you pass nondiscrim classiifcation test.

if you can pass the avg ben % test, you wouls pass coverage and not need to aggregate plans for testing.

[Guest Pennysaver]

Here's a related question regarding coverage and nondiscrimination testing of a controlled group or an affiliated service group:

Exactly WHEN is the determination made that the entities comprise a CG or ASG? In other words, is the determination made as of the first day of the plan year? The last day of the plan year? Or is the rule if you are a CG or ASG on any day of the plan year then you are for coverage and nondiscrimination testing purposes?

Assume the following scenario: ASG in existence on 1/1. ASG ceases to exist 3/1. Two of the entities of the former ASG continue their plans and now must be tested for coverage and nondiscrimination purposes as of 12/31. Are all employees included in the testing? Must they? May they?

Nothing I have found in the Code or the Regulations specifies a determination date for ASG status for testing purposes.

[fiona1]

if one plan is safe harbor and the other is not you can not aggregate and take advantage of the safe harbor. it's one of those all or nothing deals. thus, if you aggregate, you have lost the advantages that a safe harbor plan provides - in addition you have vested people 100%, etc.

Hi Tom. Above you say that if you aggregate a non-safe harbor plan with a safe harbor plan, then the SH plan loses the advantages.

However, the ERISA Outline book says that you CANNOT aggregate a safe harbor plan with a non-safe harbor plan:

In addition, a safe harbor 401(k) plan may not be permissively aggregated with a plan that is subject to ADP and ACP testing. See section IX.B. of IRS Notice 98-52 and Treas. Reg. §1.401(k)-1(b)(4)(iii)(B) and §1.401(m)-1(b)(4)(iii)(B) (December 29, 2004). Refer to Part I.6.b. of Section XIV of this chapter for more details. Note that the same issues would apply, in post-2007 plan years, to a qualified automatic contribution arrangement (QACA) that is relying on the alternative safe harbors under IRC §§401(k)(13) and 401(m)(12).

[Tom Poje]

based on the regs looks like you are correct, but then the wording in the ERISA Ouutline book makes little sense to say

"if 2 plans are permissively aggregated the ADP safe harbor is not available unless the plans treated as a single plan satisfy the safe harbor requirements."