Coverage and Nondiscrimination Testing

[ERISA25]

My understanding is that if you have two separate 401(k) Plans in the same controlled group and they separately pass 410(b) coverage testing, then they can also be tested separately for ADP/ACP testing. Does anyone have citations for this position?

[ETA Consulting LLC]

The plan document.

Good Luck!

[Guest ppapdx]

I disagree with ERISAtoolkit on this one. There are specific rules when it comes to permissive aggregation of coverage and ADP/ACP. These rules are outlined in the regulations. Plan documents cannot offer alternatives that are not in compliance with the regulations.

Permissive aggregation of coverage and ADP/ACP go hand-in-hand.

If plans are tested separately for coverage, then they must be tested separately for ADP/ACP nondiscrimination. In other words - plans cannot permissively aggregate for ADP/ACP unless they are aggregated for coverage.

If plans are permissively aggregated for coverage, then they must by aggregated for ADP/ACP nondiscrimination.

Also keep in mind that certain factors must exist in order to permissively aggregate 2 or more plans (same plan year, same testing method, etc)....

Rules are located in §1.401(a)(4)-9(a), §1.401(k)-6, §1.401(m)-5

[ETA Consulting LLC]

He's not talking about aggregating, but merely testing each plan separately. Each plan is on it's on distinct document. That document would explain that in the event the tests that are described therein are passed, then there would be no need for additional testing (which would presumably include aggregating with other plans).

Just look at it as a process

Good Luck!

[Guest ppapdx]

From the OP:

Fact - 2 plans were tested separately for coverage

Question - Can they be tested separately for nondiscrimination? (presumably ADP/ACP)

Answer - They have to be tested separately for ADP/ACP. And that is based on the regulations, not the plan.

I agree that the OP doesn't use the word "aggregate", but when he asks if they can be tested separately for ADP/ACP - what other option is there?

From the ERISA Outline Book, Chapter 11: "Suppose that the 401(k) arrangement under each plan separately satisfies coverage for the plan year. In this case, the employer treats the plans separately for nondiscrimination purposes and each plan runs a separate ADP test". And guess what? This information is in the Permissive Aggregation rules in Chapter 11.

Referring the OP to the plan document is not necessarily going to answer his question. The plan could very well be silent in terms of how testing with other plans in a controlled group could be handled. The rules around testing separately or permissively aggregating are outlined in the regulations.

[ETA Consulting LLC]

The plan document is written pursuant to the Regulations. Not to be argumentative, but the actual language explaining the tests (e.g. coverage ratio and ADP/ACP) is actually written in the document. If there was something to actually preclude a standalone plan from being tested as such, then it was likely be written in the document.

It's a process; don't overthink it

Good Luck!

[00hskrgrl]

Our position has been that they can be tested separately, if they pass the ratio percentage test for coverage. I'd have to research further on the specific regulations to see if there's a regulatory basis for this position (e.g., if they have to use the average benefits test to pass coverage, then they have to be tested together for other nondiscrimination testing) or if it's just our firm's preference.

But like ERISAtoolkit says, "it's a process".

[Tom Poje]

whether you aggregate the plans or not, there is only one avg ben pct test, which includes everyone and all contributions (despite the fact the plan might not be aggregated!)

[Guest ppapdx]

The plan document is written pursuant to the Regulations. Not to be argumentative, but the actual language explaining the tests (e.g. coverage ratio and ADP/ACP) is actually written in the document. If there was something to actually preclude a standalone plan from being tested as such, then it was likely be written in the document.

It's a process; don't overthink it

Good Luck!

There is nothing to overthink. Yes, ADP/ACP languange must be outlined in the plan document - and yes - it's based on regulations. But it doesn't necessarily need to address how testing is handled (and options therein) with other plan(s) in a controlled group. You say something like this would "likely" be in a plan. But it may "likely" not be in the plan. Referring the OP to the plan document is just lazy IMO. I agree that the plan should be referred to as a basis, but it's not necessarily going to contain the answer. And beyond that - the OP was asking for a citation.

[ETA Consulting LLC]

When it comes to a question regarding a distinct plan's ability to be tested as such, as if there is a citation needed in order to avoid aggregation with other plans of the employer, then referring to the plan document is not lazy, but the correct approach.