Brain cramp - controlled group, mandatory aggregation

[Belgarath]

I've been confusing myself here, and now I'm questioning what I think I know.

Two corporations - A & B. They are a controlled group. Each maintains separate plans. Let's assume deferrals and match only - no employer PS contribution.

1. IF there is no HC eligible for both plans, then the plans can remain separate, and be tested separately for all purposes - coverage, ADP, etc., etc. - Agree/Disagree?

2. IF there is at least 1 HC eligible for both plans, then they can still test separately for coverage. Assuming they pass coverage testing separately, they can also perform separate ADP/ACP testing, BUT, they must take into account the deferrals and match by the HCE's on BOTH plans (due to mandatory aggregation) when performing each separate ADP/ACP test in Plan A and Plan B. Agree/Disagree?

3. Now let's assume in 2 above that the plans cannot pass coverage separately - once aggregated for coverage, they must also be aggregated for ADP/ACP testing. Agree/Disagree?

Other thoughts? I need a vacation...

[Tom Poje]

as I understand it,

you have 2 plans, so they can always be tested separately (and whatever method is used for coverage is used for nondiscrimination (ADP, ACP, etc)

you are permitted to permissively aggregate the plans (same rules for coverage and any nondiscrim)

but you are not required to follow the same method every year

at least you only have brain cramps. my brain gears are getting old and rusty and don't spin like they used to.

I believe for purposes of top-heavy, if you have a key ee in both plans you are required to aggregate for testing top heavy.

[Belgarath]

Thanks Tom - but specifically with regard to #2 - do you agree that it is a true statement? I believe I'm correct on this, but as I said, today isn't a good day...

[Tom Poje]

yes, if the same HCE participates in more than 1 plan then you can still disaggregate the plans for coverage and testing (because of the 401k and 410b rules in regards to aggregation), and yes the deferrals (and matching contributions) are combined for testing (because of the 401k/m requirements) but there is no 401k/m requirement that says because you aggregate the deferrals and match you have to aggregate the plans as well.

[Belgarath]

Gracias. Of course, since a lot of plans have an HC who is eligible in both plans, and the plans can't pass coverage separately when considering all employees, you're going to end up testing them together anyway...

Anyway, thanks for the responses - nice to find out I hadn't completely lost my mind. I was starting to wonder...

[K2retire]

Anyway, thanks for the responses - nice to find out I hadn't completely lost my mind. I was starting to wonder...

'Tis the season!

[AlbanyConsultant]

Can we define "participates" here? Do you mean actually making contributions, or just "has met the eligibilty and entry provisions of the plan".

[Kevin C]

It's eligible to defer. Eligible Employee is defined in 1.401(k)-6

1.401(k)-2(a)(3)(ii)ADR of HCEs eligible under more than one arrangement

(A)General rule.—

Pursuant to section 401(k)(3)(A), the ADR of an HCE who is an eligible employee in more than one cash or deferred arrangement of the same employer is calculated by treating all contributions with respect to such HCE under any such arrangement as being made under the cash or deferred arrangement being tested. Thus, the ADR for such an HCE is calculated by accumulating all contributions under any cash or deferred arrangement (other than a cash or deferred arrangement described in paragraph (a)(3)(ii)(B) of this section) that would be taken into account under this section for the plan year, if the cash or deferred arrangement under which the contribution was made applied this section and had the same plan year. For example, in the case of a plan with a 12-month plan year, the ADR for the plan year of that plan for an HCE who participates in multiple cash or deferred arrangements of the same employer is the sum of all contributions during such 12-month period that would be taken into account with respect to the HCE under all such arrangements in which the HCE is an eligible employee, divided by the HCE's compensation for that 12-month period (determined using the compensation definition for the plan being tested), without regard to the plan year of the other plans and whether those plans are satisfying this section or §1.401(k)-3.