Coverage Tests

[Guest Celtics]

Company A with Plan A is a controlled group with Company B with Plan B. Neither company participates in the other plan. Both plans are 401ks with 3% safe harbors. Company A has 1 HCEE and 20 NHCEES. Company B has 1 HCEE and 300 NHCEES. The coverage ratio for the HCEES is 50% in both plans. Therefore, we need a coverage ratio for the NHCEES of 35% in both plans. Plan A would have 20/320 or 6.25%. Plan B would have 300/320 or 93.75%. Plan A would fail coverage. How do we correct? Thanks for your assistance.

[Tom Poje]

since both plans have the same safe harbor is there a reason why coverage is not done on a permissive aggregation basis? (Unless they have different plan years is about the only reason I can think you can't)

by the way, plan A would have NHCE ratio 20/320 and HCE ratio 1/2 so the ratio would be 12.5%, though that would still fail.

but I still don't see why you don't combine for testing coverage.

[MWeddell]

There might be BRFs in Plan A that are not present in Plan B, which would create a problem. That sounds like it may be less expensive to correct than a coverage test failure though.