Unusual Coverage Testing and OEE employees

[buckaroo]

I have a client that is part of a controlled group. One entity (A) is a mix of HCEs and NHCEs and has adopted the plan I am testing. (It is immeidate eligiblity and immediate entry.) The second (B) is NHCEs and has adopted another plan which we do not administer. I am testing coverage on A's plan. For the Statutory Employees (Age 21+ and 1YOS+), the plan is passing the ratio test for both the 401(k) and match (no allocation conditions). For the OEE group (<21 and < 1YOS), I have one HCE who falls into the OEE group and did not defer in 2008 and, therefore, does not receive a match. However, he would still be considered benefiting because he has the right to defer. (DOH 7/2007; DOT 1/2008). Based on the data that I have, it appears that the OEE group will fail the ratio test and the ABT at approximately 8%. ABPT for the OEE will automatically pass as the HCE does not receive any contributions for 2008.

Short of adding in some of the participants from entity B, is there any other way to pass coverage? (I cannot combine the Stat EEs and OEEs as the ADP tests have been completed and I believe that the entire plan would fail anyway based on the number of NHCs in entity B.)

If I do have to include a number of NHCs from B, I would think that there is a cost for including them. Without looking it up, I would think that I would have to provide a QNEC contribution of some kind. (I have not reviewed this as I am hoping for another solution.)

Any help would be greatly appreciated.

[Blinky the 3-eyed Fish]

So you have disaggregated the 401(k) component by statutory and OE employees. Why not permissively aggregate the OEE group for coverage and nondiscrimination for the 401(k) portion? Then don't you have a passing coverage test?

[buckaroo]

Unfortunately, no. If I aggregate the Stat EEs and the OEEs, I will bring the large group of NHCs from Company B into the overall coverage test and I will fail. The only reason the Stat EE group passes is because so many of the Company B NHCs do not meet the 1000+ hr and age 21.

[Blinky the 3-eyed Fish]

I am not saying don't disaggregate the statutory and OE employees. I am saying permissively aggregate the OEE for the 401(k) portion of the plan. Do you see the difference? The statutory employees will continue to be separate from the OEE and plans A and B are not permissely aggregated for them either.

[buckaroo]

I misread your post the first time. I think I have it now. Unfortunately, plan B is a profit sharing only.

[Guest VEBAPLAN]

blinky is wrong

[david rigby]

blinky is wrong

C'mon Lance. How 'bout some documentation for your position?

[Blinky the 3-eyed Fish]

Unfortunately, plan B is a profit sharing only.

Ah, an important piece of information. Now you have a failing test. Rev. Proc. 2008-50 is your next stop.

We have a legitimate thread here, so I cleaned up the nonsense.

[Mike Preston]

Buckaroo, can we get some body counts? I'm finding it a bit difficult to imagine the percentages being that bad. Maybe I'm just not very imaginative today.

[buckaroo]

Mr. Preston, thanks for coming on board. I think the actual figures will be much worse than the imagined could ever be.

APPROX FIGURES:

Company A (Plan Sponsor) has:

230 HCEs of which

229 are in the Stat EE group and

1 is in the OEE group

1200 NHCEs of which

1060 are in the Stat EE group and

140 is in the OEE group

Company B:

2455 NHCEs of which

450 are in the Stat EE group and

2005 is in the OEE group

The coverage for Stat EEs is 70.19% [(1060/1510) / (229/229] This one is terribly close, but passing.

The coverage for OEE is 6.53% [(140/2145) / (1/1] Passing ABPT as HCE is not defering, but failing the ratio portion of the ABT.

The problem is that the eligiblity for Company A's plan is immeidate for the 401(k) portion and Company B employs a large number of part-timers (retail store) who never meet the YOS (1000 hours) as defined by the plan.

Ideas? Thoughts?

[Mike Preston]

Well, I know you say that the ADP tests are done, but it seems like if you do what Blinky says, it should pass coverage, assuming satisfaction of the ABT. What it does to your ADP/ACP tests I have no idea.

If combined, isn't the ratio: 1200/3655, which is 32.8%. And with a concentration percentage of something close to 3655/(3655+230) = 94.1% isn't the safe-harbor percentage 24.5%?

What am I missing?

[Mike Preston]

Keep in mind that if you choose to correct by QNEC, you will need to bolster your 140 by around 385 folks to get to the safe-harbor percentage. This would argue for hitting the unsafe harbor percentage if that is possible under EPCRS.

In any event, the QNEC sounds like a large number.

[buckaroo]

Thanks for the posts. I had previously considered aggregating the tests. I had previously discounted it and come up with adding participants (and a prob. QNEC) to the OEE group. The problem is that by aggregating the populations causes a greater failure of the ADP/ACP test. Unforntuately, refunds have already been processed. (I have talked to the sponsor about additional refunds and they contniue to knock that solution down.) For the OEE group, most of the 140 were very little to non-contributers. Therefore, it would increase the refunds and the associated excise tax in a somewhat significant fashion.

Based on the fact the that ADP for the lower groups is quite small, I think it may benefit the sponsor to add in the bodies from Co B into the ADP portion and provide them with a QNEC. I have to complete the analysis. As you know with dealing with clients, it is not aways simply a monetary issue when dealing with corrections. For this client, the headache of additional refunds to the HCEs may be outwieghed by the cost of a QNEC.

I will present both the additional refunds versus the bringing in participants and providing a QNEC.

Thanks for your input.