Is coverage test required to be re-run without permissive disaggregation when using one-to-one correction?

[Guest TaxedToDeath]

Under EPCRS, plans may not use permissive disaggregation when correcting a failure to timely correct a failed ADP/ACP test utilizing either the QNEC method or the One-to-One correction method. However, it is not clear if this means the coverage testing for the plan must also be re-run without using permissive disaggregation, or if EPCRS is only focused on the determination of which NHCEs share in the QNEC or the one-to-one allocation.

In other words, if the coverage test was run using permissive disaggregation, is the correction sufficient even if you do not re-run coverage so long as the ADP/ACP test is re-run without using permissive disaggregation and the corrective contributions are made on that basis? Or must coverage also be run without permissive disaggregation?

[BG5150]

Your coverage test is the same either way, no?

[Tom Poje]

I am going to guess you are using the term 'coverage' test rather loosely, and simply mean "Can I test the plan separately, but then when splitting up the 'refund' I have to do it across the board."
I read EPCRS to say you can't disaggregate the plan for testing under 1-1 correction, which of course most likely produces a larger value to be corrected. pretty nasty.

"...Under this correction method, a plan may not be treated as two separate plans, one covering otherwise excludable employees and the other covering all other employees"

[Guest WyattERPA]

Under both the one-to-one correction method and the qnec only correction method, EPCRS indicates that the plan may not be treated as two separate plans - one covering otherwise excludable employees and the other covering all other employees in order to reduce the number of employees eligible to receive QNECs. Under this section, EPCRS references 1.410(b)-6(b)(3) in both corrections though this is a reference to coverage testing (which I assume prompted the original question from TaxedToDeath).

There is nothing to indicate that the 'early participation rule' cannot be used which would only require ONE test which has ALL HCEs in the the ADP/ACP test but only includes the NHCEs who have satisfied the statutory eligibility requirements. Under the early participation rule, the plan must pass coverage by breaking the plan into two plans - one covering all participants who have not met the statutory eligibility requirements (including HCEs), and one covering all participants have met the statutory eligibility requirements (both HCEs and NHCEs).

I would presume that the reference in EPCRS to not allow for the two dissagregated plans option is a reference to the coverage test and if you can't test coverage under the two plan method (one covering otherwise excludable and another covering the group who met statutory eligibility requirements), then you would not be able to use the early participation rule (e.g., include ALL HCEs but exclude NHCEs who have not met statutory eligibility requirements).

Has anyone come across this on audit? I believe this wording has been included in both EPCRS 2008-50 and EPCRS 2013-12.