Aggregation of QACA plan and Safe Harbor Plan? and Non-Safe Harbor Plan?

[Guest Pennysaver]

Hypo:

Companies A, B, and C comprise a controlled group.

Company A sponsors a traditional safe harbor plan utilizing the ADP safe harbor provisions of Code Section 401(k)(12).

Company B sponsors a non-safe harbor plan and utilizes the ADP test under Code Section 401(k)(3).

The plans maintained by Companies A and B are not aggregated, and they pass coverage and nondiscrimination testing separately.

Company C wishes to establish a new plan utilizing the automatic enrollment and QACA safe harbor provisions of Code Section 401(k)(13).

Query:

May Company C's new QACA safe harbor plan be aggregated with Company A's traditional safe harbor plan? Alternatively, may it be aggregated with Company B's non-safe harbor plan? Or is aggregation with either plan precluded by Treasury Regulation Section 1.401(k)-1(b)(iii)(B), which states that an employer may not aggregate plans with inconsistent ADP testing methods? If aggregation is precluded, then the only way Company C can proceed with its new plan is if it can separately pass coverage testing, correct?

[Guest Catherine M. Peery]

For discrimination purposes you would have to do 401(a)(4) testing. The rule you cite regarding mandatory disaggregation for testing purposes applies to the 401(k) and (m) tests, not the participants in the controlled group. So you include all the employees in all 3 companies in performing coverage and discrimination testing. Your problem is going to be in the non-safe harbor plan, because unless they're getting a substantial match, and/or they make up a very small (less than 30%) of the non-highly group, you won't pass coverage for the employer contribution and you probably won't pass discrimination testing under 401(a)(4). But you definitely combine them.

[Guest Catherine M. Peery]

For discrimination purposes you would have to do 401(a)(4) testing. The rule you cite regarding mandatory disaggregation for testing purposes applies to the 401(k) and (m) tests, not the participants in the controlled group. So you include all the employees in all 3 companies in performing coverage and discrimination testing. Your problem is going to be in the non-safe harbor plan, because unless they're getting a substantial match, and/or they make up a very small (less than 30%) of the non-highly group, you won't pass coverage for the employer contribution and you probably won't pass discrimination testing under 401(a)(4). But you definitely combine them.