Controlled group testing - ADP

[Guest Achilles]

I work on Company A, and another TPA handles Company B, the other plan in our controlled group. I will be handling the combined testing. Here are some notes:

• Each company has their own plan.
• 2012 is the first year outside the transition period.
• Both plans are non-safe harbor, deferrals only
• I have three HCE's in Company B that are also eligible to participate in Company A's plan, but none have the required eligible compensation to defer in Company A's plan.
• Company A plan ADP is tested on a prior year basis, Company B is tested on current year.
• Each plan passes coverage testing on their own.

What tests am I combining? I did run coverage for both, and they pass when combined.

Also, since I have three HCE's from Company B elig to participate in Company A's plan, I was adding these three HCE's into Company A's ADP test - their compensation and their deferrals made into Company B's plan, and one of these three is due a refund.

I'm just not 100% certain I should be adding in these three HCE's from Company B. Any advice would help, and if you could list an IRS reg. or link on procedures, that would help as well.

Thanks in advance!

[Lou S.]

This might help.

http://benefitslink.com/boards/index.php?/topic/5014-adp-test-in-control-groups/

[Tom Poje]

good grief. you can't aggregate for testing because they have different testing options, one is prior the other is current. but you have to perform coverage and nondiscrim in the same manner - either aggregate or not. see 1.401(a)(4)-1©(4) "whatever testing method used under 1.410(b)(8)...must also be used for testing under 401(a)(4)"

that is of course, one of the the whole concepts behind the transition rule, you have time to modify one or both plans

[Guest Achilles]

Tom, with both plans passing coverage on their own they can elect to not aggregate ADP, but because I have 3 HCE's eligible for both plans, doesn't that require mandatory HCE aggregation?

Meaning that I'll run an ADP test for Company A, and add in the common HCE's from Company B's plan, adding in their compensation and deferrals.

HCE ratios are always current year so I don't think it matters for this situation that one is PY vs CY.

Now, if in a future year one company fails coverage and they elect to aggregate to pass coverage then I may have an issue, but we can amend one plan to change their testing method before we get to that year.

[Tom Poje]

agree that for HCEs you have to count all comp and contributions.

but the original comments said "I ran coverage for both and they pass when combined"

I took that to mean the plans were combined, and I don't see how that is possible with different testing methods.

combining all contributions for the HCEs should not change the coverage testing, that should only affect the ADP test.

[00hskrgrl]

I read the comment on coverage the same way as Tom.

You might want to consider changing the testing method for one of the plans, so that going forward, you'd have the option to perform a full combined ADP/ACP test (or divide into component plans) and hopefully avoid refunds for your HCEs. In my experience with these types of situations, HCEs from Company A are never happy (or understanding) to hear their company's ADP/ACP test passed, but they are still owed a refund because of Company B's test results.

Alternatively, you might consider amending Company B's plan, so that Company A HCE's aren't eligible, and that would also avoid them havingt to be counted on Company B's test.