ADP Test in Control Groups

[Guest JF]

A group of companies are all part of a parent -sub control group, but maintain 2 different 401(k) plans. Readings say that all employees of a control group are treated as if they are employed by a single employer for certain testing purposes.

Question:

1) Are both plans combined for ADP/ACP testing purposes ? or, are they treated as separate plans for ADP ?

Thanks

[MWeddell]

If the plans pass coverage testing separately, then the ADP/ACP tests are also run separately. (There's a special rule that says HCE contributions in both plans count in either plan's test, so testing separately has some problems if HCEs switch plans partway through the plan year.) Because ADP/ACP tests are run based only on employees eligible for the plan, employees eligible for the second plan won't impact the first plan's test.

Assuming the plan documents give you this flexibility, you can aggregate the plans (i.e. treat them as if they were a single combined plan) for testing purposes and run one set of ADP/ACP tests. Frequently, one has benefits, rights, and features that differ between the two plans, so one must still pass the 1.401(a)(4)-4 test for each of the two employee groups, which through a series of cross-references leads one to the nondiscriminatory classification test in the 410(B) regulations.

[Guest JB2]

Good examples of your question are found in the 2000 ERISA Outline Book (S.Tripodi), pg 11.195 - 11.197. Good examples.