Control Group/ Testing

[pixmax]

Our client just informed us that they own 100% stock of another company back in 2007. This group will be adopting the current Plan. However they have a Plan and eligibility is less than the current Plan. I know they have to be tested for 2009, do I need to use the lesser requirement for 410b and ADP testing? Moving forward these employees will have to wait 1 yr (based on the current Plan Doc) Can we do a one time entry for the acquired group or do we have to let both companies in the Plan?

[Tom Poje]

ok, so you had an acquistion in 2007, which means you get the transition rules which covers you through 2008.

so for 2009 you have to treat all employees as if there is one employer.

and you use the least stringent eligiblity requirements (but since you can test otherwise excludables separately it is probably easier to do that, and the net effect would be as if both plans have a 1 year wait - unless you manage to have some HCEs who have less than a year of service)

now, after that, your results will depend on whether you are going to permissively aggregate the plans (in which case all employees show up on the ADP test, and everyone pretty much benefits for coverage) or

test separately (which could cause a coverage since all employees from one company are treated as includable and not benefiting, but then they don't show up on the ADP test when you test the other plan)

In other words, if you do not aggregate, you would have Plan A - Only ees of A benefit for coverage, B includable not benefiting, and the ADP test is only ees from A.

and

you would have Plan B - Only ees of B benefit for coverage, A includable not benefiting, and the ADP test is only ees from B.

again, I am assuming you test otherwise excludable separately and therefore the different eligibility requirements does not come into play.

[pixmax]

ok, so you had an acquistion in 2007, which means you get the transition rules which covers you through 2008.

so for 2009 you have to treat all employees as if there is one employer.

and you use the least stringent eligiblity requirements (but since you can test otherwise excludables separately it is probably easier to do that, and the net effect would be as if both plans have a 1 year wait - unless you manage to have some HCEs who have less than a year of service)

now, after that, your results will depend on whether you are going to permissively aggregate the plans (in which case all employees show up on the ADP test, and everyone pretty much benefits for coverage) or

test separately (which could cause a coverage since all employees from one company are treated as includable and not benefiting, but then they don't show up on the ADP test when you test the other plan)

In other words, if you do not aggregate, you would have Plan A - Only ees of A benefit for coverage, B includable not benefiting, and the ADP test is only ees from A.

and

you would have Plan B - Only ees of B benefit for coverage, A includable not benefiting, and the ADP test is only ees from B.

again, I am assuming you test otherwise excludable separately and therefore the different eligibility requirements does not come into play.

So it seems I should test ADP on all employees who met the lesser requirement which is 2 months (Plan B). Coverga would not pass if I had to aggregate both Plans since one is a 2 month wait and the other is a 1yr wait. We can then amend the Plan (A) as of 1/1/10 to allow all employees currently eligible to particpate in (Plan A) and then require the 1 year wait for all new hires?

[Tom Poje]

let say I had the following:

Company A 1 year wait 5 HCE 10 NHCE plus 15 NHCE less than 1 year, so usually ignored)

Company B 2 month wait 2 HCE 8 NHCE (who would meet 1 year wait) plus 12 NHCE meeting 2 month wait

if you test otherwise excludable separately you would have 2 tests

7 HCE 19 NHCEs and the otherwise excludable group consisting of 27 NHCEs

since the otherwise excludable group is only NHCEs that passes.

so now you test the group with 1 year.

you are allowed to test separately, and would have plan A

NHCE ratio 10/(10 + 8NHCE)

HCE ratio 5 / (5 +2 HCEs)

and an ADP test including only plan A with 1 year of service

plan B

NHCE ratio 8/ (8 +10) NHCEs)

HCE ratio 2 / (2 + 5 HCE)

and an ADP test only with plan B and 1 year of service. remember, there were no HCEs in the otherwise excludable group, so that portion passes

or you could permissively aggregate the plans, all ees with more than 1 year svc are benfiting, and then you have 1 ADP test including all people with more than 1 year of service.

or you could also ignore otherwise excludables and test everybody with 2 months.

lots of possibilities.

[pixmax]

let say I had the following:

Company A 1 year wait 5 HCE 10 NHCE plus 15 NHCE less than 1 year, so usually ignored)

Company B 2 month wait 2 HCE 8 NHCE (who would meet 1 year wait) plus 12 NHCE meeting 2 month wait

if you test otherwise excludable separately you would have 2 tests

7 HCE 19 NHCEs and the otherwise excludable group consisting of 27 NHCEs

since the otherwise excludable group is only NHCEs that passes.

so now you test the group with 1 year.

you are allowed to test separately, and would have plan A

NHCE ratio 10/(10 + 8NHCE)

HCE ratio 5 / (5 +2 HCEs)

and an ADP test including only plan A with 1 year of service

plan B

NHCE ratio 8/ (8 +10) NHCEs)

HCE ratio 2 / (2 + 5 HCE)

and an ADP test only with plan B and 1 year of service. remember, there were no HCEs in the otherwise excludable group, so that portion passes

or you could permissively aggregate the plans, all ees with more than 1 year svc are benfiting, and then you have 1 ADP test including all people with more than 1 year of service.

or you could also ignore otherwise excludables and test everybody with 2 months.

lots of possibilities.

Hey Tom, thanks for all your help.

Now for the Document. Plan A has not adopted Plan B yet and they have a 2 month wait. Can we amend the Plan as of 10/1/09 to allow Plan A as an adopting employer and honor service for elgibility/vesting but state that anyone hired after 10/1/09 would come in after a 1yr wait? It doesn't seem that we would be taking anything away. Or should we just have everyone in Plan A hired by 10/1/09 enter the Plan. How does that affect the employees who had to wait 1 yr in Plan B?

[pixmax]

Tom do you think I can amend the Plan to merge as of 1/1/09, (company was acquired in 2007) add the Adopting Employer and then amend the Plan as of 10/1/09 to allow employees of the acquired Plan to enter if hired by 10/1/09? We want to keep the current Plan at 1 yr and only let those in from the merging company.

This is a stock purchase.

[Sully]

Don't forget to make sure that neither one of the documents has a provision that automatically covers all members of a controlled group. Standardized prototypes in particular.