Two Safe Harbor 401(k) Plans

[Dougsbpc]

Suppose you have a partnership with 8 partners that buys a corporation with 25 employees.

Is there anything wrong with having the partnership sponsor a safe harbor match 401(k) plan and the corporation sponsor a separate but identical safe harbor match 401(k) plan? The partnership plan would exclude all non-keys and the corporation plan would exclude all keys.

They are a controlled group and affiliated service group so both plans would be aggregated for purposes of 410(b). All employees that meet age and service would be covered with exactly the same benefits under either plan.

The reason they may want to have two identical plans rather than one is that the partnership plan could file a 5500-EZ and not be subject to the audit / high bonding requirement for non-traditional assets. Many of the partners are big non-traditional asset investors. A controlled group can now qualify to file an EZ.

[Guest Sieve]

From an IRS testing perspective, it would seem to be ok so long as the employees (non-keys) also can invest in non-traditional investments (since combined 410(b) testing mandates combined 401(a)(4) testing and since the availability of investment options is a 401(a)(4) BRF subject to non-discrimination). (Treas. Reg. Section 1.401(a)(4)-4(e)(iii)©.)