HCE Manadatory Aggregation

[justatester]

Here is the situation:

3 Plans:

Plan A: Regular plan

Plan B was a safe harbor plan but terminated effective 3/31/13. Participants started participating in plan C effective 4/1/13.

Plan C: was part of Plan A until 4/1/13

If plan B decides to test separately from 1/1/-3/31. Does HCE mandatory aggregation apply? In other words, do I need to combined the HCE comp/contributions made to plan C in the test of Plan B and vice versa?

[K2retire]

Are these all plans of the same employer?

[MWeddell]

I am guessing that all three plans are sponsored by the same controlled group or affiliated service group, so that it is one "employer."

If Plan B was a safe harbor plan, then there is no ADP testing and (assuming no traditional after-tax contributions) no ACP testing. As long as the HCEs in the Plan B weren't allowed to defer to the other plans during 1/1/13 - 3/31/13, there's a exception to that odd HCE aggregation rule that will protect Plan B's safe harbor status.

If Plan C's definition of plan year indicates that it began 4/1/2013, then the Plan B HCE contributions won't be included in the Plan C ADP / ACP tests. If the plan year for Plan C instead began 1/1/2013 but just the cash or deferred arrangement started up April 1, then you probably have a problem and need to aggregate those Plan B HCE contributions.

[justatester]

It is actually a bit more complicated.

Plan B was acquired in 2012 at that point became part of the controlled group. They feel since the plan terminated they have lost safe harbor status and are required to be tested for 2013. As of 4/1 they started participating in Plan C at which point the participants in the division being sold also left plan A and started participating in Plan C. The sponsor did not sell off the division until 7/1/13. Since they were part of the controlled group through 7/1, the sponsor directed us to test Plan B & C's employees through 6/30/13 in the Plan A's 2013 Full Year test.

The problem is BRF testing is required because the SH match formula is more generous then all of the other formulas. The plan B's employees are mostly HCEs (17 HCEs and 8 NHCEs). The formula does not pass BRF.

So we were thinking of carving out plan B and test for the short plan year and if it fails ADP/ACP corrections would be easier to correct rather than funding additional match to correct the BRF. If we test them separately, we can potentially utilize the transition rule for coverage.

[Tom Poje]

you used the deadly word "short plan year"
if you truly have a short plan year then under
[Treas. Reg. § 1.410(b)-7(d)(5)] you can not aggregate the plans - they must have the same plan year.

usually a plan is amended to have a short plan year, or all assets are paid out, thus when filing the 5500 you indicate a short plan year