ADP Test - Employer Sponsors 2 Plans

[JBones]

I have read the regs and several posts on this board, but I seem to be just confusing myself more, so, at the risk of asking a stupid question, I thought I'd ask a stupid question:

If an employer has 2 401(k) plans and there is no overlap of employees between the plans, can they automatically test each plan separately, or does each plan need to pass 410(b) coverage testing on its own (considering all employees of the employer in the test) in order to test each plan on its own?

I would think that each plan needs to pass 410(b) on its own, but these posts make me think otherwise:

http://benefitslink.com/boards/index.php?/topic/55126-brain-cramp-controlled-group-mandatory-aggregation/?hl=disaggregate#entry240106

http://benefitslink.com/boards/index.php?/topic/54601-adpcoverage-testing-for-control-group/?hl=disaggregate

[Tom Poje]

under the permissive aggregation rules, it is optional if you want to aggregate. hence the name 'permissive' aggregation.

1.410(b)-7(d) says:
(d) Permissive aggregation for ratio percentage and nondiscriminatory classification tests—
(1) In general. Except as provided in paragraphs (d)(2) and (d)(3) of this section, for purposes of applying the ratio percentage test of § 1.410(b)-2(b)(2) or the nondiscriminatory classification test of § 1.410(b)-4, an employer may designate two or more separate plans (determined after application of paragraph (b) of this section) as a single plan. If an employer treats two or more separate plans as a single plan under this paragraph, the plans must be treated as a single plan for all purposes under sections 401(a)(4) and 410(b).

If you had 2 plans but only one asset pool, then I think the IRS could view that as 1 plan and thus you would have to aggregate, but I could be wrong about that particular situation

[JBones]

Thanks Tom. Just to confirm, if I am not permissively aggregating, is each plan required to include all employees of the employer in the denominator of the ratio % test or can I run that test only taking into account the employees of each plan?

[Tom Poje]

on the old Kung Fu TV show I think the response would have been

Good question, grasshopper!

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

No matter how many plans you have, you still have only 1 employer. (same as controlled group)

so all bodies (that have met eligibility) count in the denominator.

for match and profit sharing you could exclude 'participants' who terminated < 500 hours if they didn't benefit.

note, the regs use the term 'participant' so when looking at plan A, you can exclude plan A terminees < 500 hours if they didn't benefit, but not plan B, because those people weren't participants.

[JBones]

Got it. That's what I thought. In this case, one plan fails coverage, so I'm going to have to look at ABPT or end up aggregating them for coverage and ADP. I appreciate the help.