Plan Aggregation

[Guest Hgreer]

Can anyone comment or provide direction on what happens if you are required to aggregate for testing two separate plans (by the same plan sponsor due to an acquisition) where your eligible employees then end up being over 120 employees - which presumable means you need an independent audit but as separate plans you would not? Is our premise correct that we then need to do an audit? Any guidance would be greatly appreciated.

Thanks!

[ETA Consulting LLC]

An audit is require "ONLY" in the event the number of eligible employee in any one plan exceed the limit. You can have two separate plans (99 employees in each) that require separate testing in order to pass, but not require an audit for the Form 5500.

Two entirely separate things.

Good Luck!

[Guest Hgreer]

_{Thank you for the response. But to clarify. These two plans are being offered by the same plan sponsor under the same tax Id. One of the plans was brought into the fold through an acquisition - the IRS came in and said the plans need to be aggregated to be tested for 2011 and 2012 which we are doing. Once aggregated we clear the 120 level easily - would hate to do an audit in retro. It seems that anyone would create different plans by division in order to avoid triggering an audit. Do you still believe that they are still considered to be separate plans and therefore we do not need an audit? Thanks again for the help!}

[BG5150]

_{These two plans are being offered by the same plan sponsor under the same tax Id.}

Do they have separate IRS plan id's? Eg, 001 & 002?

[chc93]

_{It seems that anyone would create different plans by division in order to avoid triggering an audit. Do you still believe that they are still considered to be separate plans and therefore we do not need an audit?}

We have plans such as this. As posted above, same sponsor, EIN, but different plan numbers... 001, 002. No audit for each plan. But, have to set up and maintain 2 plans, which is an added cost (but much less than an audit, and no audit hassles).

[Guest Hgreer]

Thank you for the responses - most helpful. Given it was an acquisition I do not believe they are set up as 001 and 002. I think they are both 001. Would that Doom us to having to do an audit?

[ESOP Guy]

Thank you for the responses - most helpful. Given it was an acquisition I do not believe they are set up as 001 and 002. I think they are both 001. Would that Doom us to having to do an audit?

Check the Form 5500 for each plan my guess is they are not both 001. If they are both 001 that is more likely a mistake on the 5500 and it will not change the answer about the audit.

For what it is worth I have seen a company that had a plan for the people whose last name was A-L and one whose last name was M-Z to avoid the audit requirement. Odd but true.

[Tom Poje]

if push came to shove...many years ago the DOL voiced the opinion below (in your case or in the case of controlled groups, etc, I think the DOL would have less of a problem than what is described below. The case described below it could boil down to a facts and circumstances (which should of course include costs of having an audit). whether they still hold that opinion is unclear, and of course, any opinion expressed at an ASPPA meeting doesn't necessarily reflect an 'official' position of the DOL. But, regardless of how one feels one way or another of the DOL statement, it is clear that the body count is only by each plan and not in the aggregate (aside from blatant avoidance and evasion), which is your concern.

I have always understood the plan number is simply used to avoid confusion if more than one plan exists or ever existed.

.........................................

the question was raised at the 2000 annual ASPPA meeting, in the general Q&A session. The questions at this session were answered by Joe Canary, Scott Albert, Lou Campagna and Mabel Capolongo of the Department of Labor:

Question 5: A 401(k) plan has 150 participants. The plan must file a full 5500 and have an audit by an accounting firm. Due to the cost of the audit ($10,000 or $15,000), my suggestion to the client is to split the plan into two plans, each with 75 participants. For 2000 there will be an audit. The plans could be split into two plans on December 31, 2000. Therefore, on January 1, 2001, both plans have less than 100 participants and no audit required. For tax qualification testing, they can be permissively aggregated. In fact, my plan is to administer as if it was one plan and just separate for 5500 purposes. Is my conclusion correct?

Answer: This question raises issues of avoidance and evasion. It is not certain that you really have two plans for purposes of Title I of ERISA in this instance--even if there may be two plans for Internal Revenue Code purposes. In Advisory Opinion 84-35A, the Department stated it would consider, among others, the following factors in determining whether there is a single plan or several plans in existence: who established and maintains the plans, the process and purposes of plan formation, the rights and privileges of plan participants and the presence of any risk pooling, i.e., whether the assets of one plan are available to pay benefits to participants of the other plan. This Advisory Opinion also notes that the Internal Revenue Service has cited the existence or absence of risk pooling between funds as relevant to the determination of single plan status. See §1.414(1)-1(b) 26 C.F.R. §1.414(1)-1(b). In DOL Advisory Opinion 96-16A, the Department stated its position that whether there is a single plan or multiple plans is an inherently factual question on which the Department ordinarily will not opine in the Advisory Opinion process.

[Guest Hgreer]

Thank you all for the information - very helpful!