Correcting 410(b) failure in controlled group

[Floridaattorney]

Client owns 100% of two separate corps. Each has its own 401k. One (Plan B) is safe harbor match. The other (Plan A) is non safe harbor match. Plans have been separately administered for years and years. Client never told either tpa about the other until this year. So, testing on a control group basis was not performed until this year.

One plan (plan A) passes 410b ratio percentage test. The other (Plan B) does not. Plan B also fails the non discriminatory portion of the average benefit test. So, 410b coverage test is not passed.

Plan B is much smaller. Document is silent on correction method. However, it appears at first impression that the appropriate correction method for prior years would be to add Nhce employees from company A to Plan B so that Plan B can pass either the ratio or abp test.

That said, this will require many employees of A to be added to Plan B. And, many of the employees of A who would be added to Plan B are employees who have participated in Plan A and, received matching contributions from A.

Is this the appropriate correction method?

Is there another one?

If this is the appropriate correction method, what criteria should be used to select the A employees who would be retroactively included in the A plan. What level of benefit should they receive? Should there be a ' set off' for what they have already received from plan A

Any other comments are also welcome.

Thank you.

[Tom Poje]

to start with,

under rev proc 2013-12 (EPCRS) 4.01 and 4.02

self correction under EPCRS is only available for operational failures.

Demographic failures would be corrected under VCP

demographic failures 5.01(2)© defines Demographic failures as those failing to satisfy 401(a)(4), 401(a)(26) or 410(b)

which sounds like your situation.

so, basically you come up with a possible 'fix' and then submit and see if the IRS approves.

[Floridaattorney]

Thank you Tom.