EE of Both in CG, but Plan is for just one ER

[J Simmons]

Situation: A 2-ER control group situation where the plan is for only EEs of one ER. An EE of both ERs is plan eligible.

In determining that EE's EBARs, do you use her compensation just from the ER for which the plan is established and benefiting EEs or her combined compensation from both ERs in the control group?

In determining that EE's 'gateway' minimum, do you use her compensation just from the ER for which the plan is established and benefiting EEs or her combined compensation from both ERs in the control group?

[Laura Harrington]

Situation: A 2-ER control group situation where the plan is for only EEs of one ER. An EE of both ERs is plan eligible.

In determining that EE's EBARs, do you use her compensation just from the ER for which the plan is established and benefiting EEs or her combined compensation from both ERs in the control group?

In determining that EE's 'gateway' minimum, do you use her compensation just from the ER for which the plan is established and benefiting EEs or her combined compensation from both ERs in the control group?

The general nondiscrimination test must use compensation that satisfies IRC 414(s). If you do not include the employee's compensation from the non-adopting employer does the plan satisfy the 414(s) compensation ratio test? If yes, then you do not have to include it when calculating the EBARs. If no, then excluding it is not an option.

The 5% test of the gateway minimum is based on 415 compensation which would include compensation from the non-adopting employer. The 1/3 test references 414(s) compensation so it depends upon whether or not the compensation ratio test is satisfied if you do not consider the compensation from the non-adopting employer.

I guess I should caveat that whether or not you can exclude the compensation for the non-adopting employer for the nondiscrimination test depends upon the plan document. Most plan documents that I see indicate that any definition of compensation that satisfied 414(s) can be used for nondiscrimination testing, but I imagine there are documents out there that are more limiting.