Plan aggregation for coverage/non-discrimination

[Guest Sieve]

I've been inactive for ages. I've missed the discussions. Perhaps I once again will become active . . .

Question: Can 2 plans with different eligibility standards (one with a y/s wait, and the other with immediate entry) be aggregated for 410(b) & 401(a)(4)?

Facts (in brief): Only NHCEs are in the plan with immediate entry, while the plan with primarily HCEs has a 1 y/s requirement. When testing the HCEs' plan (for 410(b), ADP & PS non-discrimination), I think I cannot use the 1 y/s requirement of that plan--but I can't find the reg stating that. Does anyone know where it is--or am I once again hallucinating?

[ETA Consulting LLC]

When you're using the Average Benefits Test to test all plans of the employer, then you'd use the most liberal age/service/entry requirements for the test. You would still get to separate test less than age 21 & 1, but you may end up including a plan with more than 1 year of service for plan entry. Permissive aggregation is different. You're only testing two plans (i.e. based on 21 & 1).

Good Luck!

[GMK]

Glad to see your stick back on the ice, Sieve.

I was concerned that the lockout checked you out of these boards (a net loss for us).

[Mike Preston]

Larry, good to see you posting. I've been gone more often than not the last two years myself.

I don't understand Toolkit's response.

"Can 2 plans with different eligibility standards (one with a y/s wait, and the other with immediate entry) be aggregated for 410(b) & 401(a)(4)?"

The answer is yes.

"When testing the HCEs' plan (for 410(b), ADP & PS non-discrimination), I think I cannot use the 1 y/s requirement of that plan--but I can't find the reg stating that. Does anyone know where it is--or am I once again hallucinating?"

This is the corollary question. Above, you asked whether you can test everything together. Now you are asking whether you must test everything together. The answer to that is no.

The citations you are looking for are two-fold. First, you will want to look at 1.410(b)-6 "Excludable Employees". The second is 1.410(b)-7 "Definition of plan and rules governing plan disaggregation and aggregation".

Combining those two citations gives the Plan Sponsor a lot of flexibility. At one end, the plan sponsor can permissively aggregate both plans and determine that there are no excludable employees. This results in the "yes" answer to your first question. At the other end, the plan sponsor can select to test each plan separately, in which case each plan considers those participating in the other plan as excludable.

Note that you have separate 410(b)/401(a)(4) tests for PS and 401(k), so it gets a bit messy.