DB/DC combined testing

[jpod]

This is probably a silly question, and I always assumed the answer, but as I look through the regulations I have not yet found anything to confirm the answer.

Let's assume you have a DB Plan and a DC Plan, each satisfying 410(b) via ratio percentage. Therefore, they do not NEED to be aggregated for 410(b). However, while one plan satisfies 401(a)(4) on its own, the other does not. If they are aggregated, the aggregated DB/DC plan satisfies 401(a)(4). The 1.401(a)(4)-9 regulation says you can aggregate two plans for 401(a)(4) testing if those plans are permissively aggregated and treated as a single plan under 1.410(b)-7(d), and 1.410(b)-7(d) contemplates, naturally, that the two plans will be permissively aggregated only if necessary to satisfy coverage. As I said there is no need to permissively aggregate these plans for 410(b), but can they still be aggregated for 401(a)(4) testing? Am I reading too much into the language of the regulation?

[PensionPro]

Do the plans pass 410(b) if aggregated?

[jpod]

Yes; pass 410(b) if aggregated and 401(a)(4) if aggregated. Why is that relevant to my question?

[Tom Poje]

if you aggregate for coverage you have to aggregate for nondiscrim, and the reverse would also be true, maybe not quite as obvious in the regs (though certainly even if not word for word, the logic is there for consistency)
but perhaps, looking at the option for testing 2 401(k) plans will help. the example actually uses 1 plan, but illustrates otherwise excludable employees.
1.401(k)-1(b)(4)
(iii) Aggregation of plans—
(A) In general. For purposes of this section and §§ 1.401(k)-2 through 1.401(k)-6, the term plan means a plan within the meaning of § 1.410(b)-7(a) and (b), after application of the mandatory disaggregation rules of § 1.410(b)-7©, and the permissive aggregation rules of § 1.410(b)-7(d), as modified by paragraph (b)(4)(v) of this section. Thus, for example, two plans (within the meaning of § 1.410(b)-7(b)) that are treated as a single plan pursuant to the permissive aggregation rules of § 1.410(b)-7(d) are treated as a single plan for purposes of sections 401(k) and (m).


Example 2.
(i) Employer B maintains Plan W, a profit-sharing plan that includes a cash or deferred arrangement in which all of the employees of Employer B are eligible to participate. For purposes of applying section 410(b), the plan treats the cash or deferred arrangement as two separate plans, one for the employees who have completed the minimum age and service eligibility conditions under section 410(a)(1) and the other for employees who have not completed the conditions. The plan provides that it will satisfy the section 401(k) safe harbor requirement of § 1.401(k)-3 with respect to the employees who have met the minimum age and service conditions and that it will meet the ADP test requirements of § 1.401(k)-2 with respect to the employees who have not met the minimum age and service conditions.
(ii) Under these facts, the cash or deferred arrangement must be disaggregated on a consistent basis with the disaggregation of Plan W. Thus, the requirements of § 1.401(k)-2 must be applied by comparing the ADP for eligible HCEs who have not completed the minimum age and service conditions with the ADP for eligible NHCEs for the applicable year who have not completed the minimum age and service conditions

in other words, if you don't aggregate for coverage, you can't aggregate for nondiscrim.

[jpod]

Tom, I am not sure if you were answering my question or not. My question is: If you don't need to aggregate for coverage, CAN you aggregate for coverage in order to aggregate for 401(a)(4)?

[jpod]

Maybe my question is fundamentally stupid. Maybe the simple answer is that because permissive aggregation is "permitted," and there are no specified conditions to meet before you may permissively aggregate, you can do it regardless of the reason, even if the reason is to shoe-horn yourself into aggregation of the two plans for 401(a)(4).

[Tom Poje]

ok, so you 'maybe' don't want to aggregate for coverage. the example I cited clearly says "because you didn't aggregate for coverage, you can't aggregate for nondiscrim"